Family picnic

The bank of Mum and Dad and multi generational households – consideration of the possible pitfalls

A recent study by Aviva has forecast that 3.8 million people aged between 21 and 34 will be living with their parents by 2025, a third more than at the moment. The number of households containing two or more families is also expected to rise from 1.5 million to 2.2 million. The main reason is the affordability of housing.

According to Legal and General lending from parents to help get their children on the UK property ladder will amount to £5bn in 2016. Legal and General say that the so called “Bank of Mum and Dad” will help to finance 25% of all UK mortgage transactions this year, at an average amount of £17,500.

While this additional source of lending can be a great assistance to those trying to get on the property ladder, careful thought must be given to the arrangement to prevent “Mum and Dad” losing out in the event of future relationship breakdown, even if the child is not in a relationship at the time.

Relationship breakdown in a Cohabiting Couple

Should parents decide to advance money to their child then consideration must be given to the position of any current or future partner that they may be living with. If the property is being bought by their child and a partner then there must be clear discussion as to whether they intend their contribution to be a gift or to acquire a beneficial interest in the property. If it is to gain an interest then clear legal advice must be taken by all parties to ensure that interest is protected not only if there is a breakdown in the parent’s relationship with the child but also a breakdown of the relationship between the child and their partner. If the parents do not register their beneficial interest then that initial advancement of money could be lost. Even if the child is single at the time that the monies are advanced if they subsequently cohabit and that partner makes contributions to the property then the parents could find themselves involved in very complex and expensive civil litigation under the Trusts of Land and Appointment of Trustees Act to try to recover their initial investment.

Divorce

If there has been an advancement of monies and there is then a divorce then those monies could become the subject of a dispute between the child and their partner. The issue that the Court would need to decide is whether those monies were made as a gift or a loan or with the intention of the parents acquiring a beneficial interest. The parents may find themselves having to intervene in the proceedings and effectively be in proceedings against their own child. In those cases the Court would need to determine the parents interest first before being able to make decisions regarding the overall financial settlement between the divorcing couple. That could prove to be very time consuming and expensive for everyone involved and, if there is no clear agreement, would depend on the Court having to hear evidence regarding intentions and payment at the time the monies were lent.

Multi generational households

Another way that families are trying to resolve the housing difficulty is to combine their resources and live under the same roof. However the phrase “you can choose your friends but you can’t choose your family” may ring harder once the novelty of the ease of financial pressure has worn off.

Aside from the complexities of who is responsible for the day to day costs of living there may be complications if one party wishes to bring the arrangement to an end and attempts to release their initial investment, which could be either by contribution to the initial purchase price or acquisition of a beneficial interest by way of contribution to mortgage whilst living there. If there are no clear agreements regarding what is to happen in the event of “relationship breakdown” then they could find themselves in expensive litigation. Whilst the concept of a cohabitation agreement has traditionally been considered for couples who are involved in a “husband and wife” relationship it would be highly advisable for those living in multi generational households.