How to protect Bank of Mum and Dad deposits

Young couples buying a home together – often with a hefty deposit from the bank of mum and dad – are failing to protect their interest in the property and risk losing the family investment should their relationship break down.

When couples embark on buying their first house together, they think their relationships will last forever. Unfortunately, they often don’t, and the problems start when one partner contributed significantly more than the other in terms of deposits and mortgage payments.

This is why young couples to take preventative steps to ensure the property is divided in line with the contributions of each partner in the event of a split, as the law governing cohabitation can produce some very unfair results.

The stakes are high, particularly for parents who, according to Legal & General’s Bank of Mum and Dad Report 2018, were predicted to lend £5.7bn last year – purchasing almost 317,000 homes.

A survey commissioned by Mills & Reeve of more than 1,000 cohabiting couples found that only 37 per cent of the 25-34-year olds surveyed who had purchased their home together contributed equal amounts to the deposit for their

home.

However, despite this, couples are failing to take out protective measures such as ensuring the property is purchased using the correct ownership structure or putting in place legally binding cohabitation agreements.

There is a lack of awareness about different ownership structures. Often, when couples buy a property together, they will own it as ‘joint tenants’. Yet many are unaware that under a joint tenancy, the equity in the home is typically split 50:50 regardless of how much each contributed.

The alternative way to own a property jointly is as ‘tenants in common’ where each owns a share of the equity. This can either be half, or a defined percentage. On sale, each receives their respective share of the proceeds.

Despite the obvious benefits for those contributing unequal amounts, only 15 per cent of cohabiting couples surveyed bought their property as tenants in common.

It is not unusual for cohabiting couples to have unwritten agreements whereby one pays the mortgage while the other pays the bills. Or one puts down a larger deposit on the understanding that this will be returned in the event of a split.

While these arrangements may work when the couple are on good terms, if the relationship breaks down, disputes often arise if they own their home as joint tenants.

We recently advised in a case whereby a client bought a “project” property with his partner as joint tenants. He borrowed money from his parents for the deposit and the renovation work. In contrast, his partner had made no capital

contribution to the property. The relationship ended badly and she wanted her legal 50 per cent of the equity. There was nothing in writing with his parents - a classic example of a failure to protect the investment.

There is also a lack of awareness and take up of other wealth protection measures, such as legally binding cohabitation agreements that can provide certainty in property division upon the breakdown of a relationship.

TCouples embarking on buying property together need to look at different ownership structures and wealth protection measures to protect their investment.

For more information visit www.cohabitation-law.co.uk