Protect ‘bank of mum and dad’ investments

Parents who loan their children money towards a home deposit are being urged to do more to protect their investment as new research shows the sums being lent are becoming ever larger.

The warning comes from legal expert, Gillian Graveson, who said many parents are unaware they could lose out if their offspring’s circumstances change and the house is sold.

A new report by Nationwide Building Society* shows that potential first-time buyers would need to save for eight years on average to afford a deposit for a home. The data also showed the average deposits in the UK, outside London, average £20,000.

Gillian, a partner and family law expert at Birchall Blackburn Law, said: “The pressure of saving hard for long periods of time is increasingly leading to young people and first-time buyers calling on the so-called bank of mum and dad.

“Often it is one set of parents lending the money, which means if their son or daughter and the person they are buying a house with were to separate, they could lose money when the house is sold. It’s something we’re seeing more of in this region.

“The best way for parents to protect this money is to make the deposit into a formal loan, ideally secured against the property. This means the money will be recoverable if the property is sold in the future.

“Parents in this position should advise their children to have a Declaration of Trust Deed drafted. The Declaration of Trust will fix the shares that they have in the property – equal or varied, and it will stipulate that when the house is sold, their loan will be repaid directly to them.

*Nationwide house price index report, December 2017