Difficult Conversations (2) - The Bank of Mum & Dad (or other!)
Managing Partner, Head of Private Client
DIFFICULT CONVERSATIONS (2) – The Bank of Mum & Dad (or other!)
How to help your children buy a home
If you are aged between 43 and 59 then you are a Gen Xer. You may have children or nieces and nephews who are Millennials. We hear “how often Millennials eat avocados, have foreign holidays and treat themselves to lattes”, compared to Gen Xers “luckily and more easily got on the property ladder in their 20s”. Some difficult conversations to be had within families.
The reality, according to Schroders[1] is that whereas property prices were around 4 times average earnings in the 1990s, they are now around 9 times average earnings. This makes buying a property very hard indeed for a single person on an average salary. Where they can, many Gen X parents or grandparents want to help by gifting or lending some money for a deposit.
The conversation rarely goes as simply as
“Please can you lend me £20k towards a flat?”
“Yes, sure, here you go”.
Even if it does, when the conveyancing process begins, the lender and solicitor will want to know if you intend to gift that without strings, or not.
What property will they buy? What if you do not agree that it is a good investment? Do you have a say?
What if they falter on the mortgage, and the property is re-possessed? Can you get your money back? Do you want to?
What if they fall in love with someone who you believe is going to be trouble, or if they don’t look after the property well?
And what if you need that money yourself in later life?
There is a lot to think about. But all of these questions can be overcome if you can face the difficult conversations and work out what you want. If the gift is yours to make then being upfront about fears is a good place to start.
The basic that you have to decide what you can afford to give and not need back. Anything can happen even with the best intentions.
Then you decide if you want to give a gift with conditions or ties attached. Remember that once an unconditional gift is made you have not control over it. A gift to a child becomes an asset of their marriage and the fact it was gifted by you is likely to be immaterial as the marital assets are divided up on a divorce. This can be galling.
If you want to control the gift, then it really is not a gift. It is a contribution to the property and you need to protect it in a declaration of trust. This may restrict the level of mortgage that can be obtained. However, it is best to be fully advised and really understand the outcomes.
As with all arrangements involving money it is best to get legal. So having the conversations whilst everyone is keen and happy is the best place to start.
