Buying property and the bank of mum and dad 

In today’s challenging property market, the ‘bank of mum and dad’ has become an increasingly common source of financial support for many young people. Research carried out by Zoopla found that 79% of first-time buyers in the past five years have had assistance funding their deposit, with 75% of that group receiving help from their parents. On average, parents contribute £32,440. Beyond deposits, parents also continue to assist with mortgage payments. This highlights the dramatic shift in the housing market for this generation of home buyers.  

While such generosity can help secure a child’s financial future, it also complicates the legal landscape of property ownership. 

The nature of the payment 

When parents contribute financially to a property purchase, will this be classed as a gift, a loan, or an investment granting them a share in the property? 

Legally, the ‘presumption of advancement’ assumes that money given by a parent to a child is a gift. This presumption, historically applied to fathers, now extends to mothers and remains applicable even when the child is no longer a minor. 

However, this presumption is weak and can be overturned by evidence suggesting a different intention. If there is proof that the money was to be repaid or that the parent was meant to have an interest in the property, the payment could instead be classified as a loan or an investment, potentially giving rise to a beneficial interest under a common intention constructive trust. 

For more on common intention constructive trusts, see our earlier article: Property rights unveiled: Can you make a claim without tying the knot?  

Who benefits from the gift?  

Consider a scenario where an unmarried couple purchases a home with financial assistance from one partner’s parents. If the relationship ends, who benefits from that contribution? Without proper legal documentation, the answer may be unclear and may not align with the intentions of the parents or child. 

The resolution often depends on the property’s ownership structure. Is the property held as joint tenants (equal 50/50 shares) or as tenants in common? Has the deposit been ring-fenced? Should the parents be reimbursed, or should the funds be allocated solely to their child? Without clear documentation, the parental contribution might inadvertently benefit both partners equally, despite the subsequent breakdown of their relationship. 

How to protect the gift 

To prevent disputes, legal safeguards are essential. Here are three key strategies: 

1. Express declaration of trust in the transfer agreement 

At the point of purchase, buyers can specify their intentions in the transfer document (Form TR1), particularly in panel 10.  

Selecting the appropriate option creates a legally binding express declaration of trust, which determines the beneficial ownership of the property at the point of purchase. 

2. Standalone declaration of trust 

A more detailed declaration of trust can be created as a separate legal document. To be binding, it must meet the requirements of section 53(1) of the Law of Property Act 1925—namely, it must be in writing and signed by the parties. This option would be appropriate if the parties wished to ring-fence the deposit for the benefit of a particular person.  

3. Cohabitation agreement 

A cohabitation agreement offers a broader framework, incorporating a declaration of trust while also addressing financial responsibilities, property expenses, and arrangements in case of separation or death. 

See our YouTube video on the benefits of a cohabitation agreement here.  

Conclusion 

As the bank of mum and dad continues to play a vital role in helping younger generations onto the property ladder, families must carefully consider the legal implications of these financial arrangements. Clear agreements, transparent communication, and legal protections are essential to safeguard the interests of the parents and child. interests. 

By understanding potential risks and taking proactive steps to formalise property rights, families can ensure that their support does not lead to future disputes or complications. 

For further guidance on protecting your beneficial interest in a property or resolving property disputes, please contact a member of the Home Ownership Disputes Team.