We are looking to help our two adult daughters buy their first home, but if they get married how can we ensure that none of the money we give them goes to a husband if the marriage fails relationship ?
We are looking to help our two adult daughters buy their first home within the next two years.
Neither of them are in a relationship at the moment, but if they got married, how could we make sure that none of the money we give them goes to a husband if their relationship were to fail by the after ?
We’ve heard of putting a “charge” on a contract when buying a home. What are the finer details of doing this? Mrs, Taunton, Somerset
Think ahead: how do you make sure that none of the money you give them goes to a husband if their relationship fails later?
Ruth Jackson-Kirby responds: With house prices rising about 65% over the past ten years, that first rung on the real estate ladder has become increasingly difficult to achieve.
The average first-time buyer now needs a down payment of £75,000, according to online property website Rightmove. As a result, Mom and Dad’s Bank has become increasingly important to first-time buyers. So your problem is not uncommon. However, I’m afraid there is no simple answer to the question you raise.
In order to put a charge on the property, you would need the money to be a loan rather than a gift. This could then be noted as a second charge, meaning that when the property is sold, the mortgage lender is paid off first, then you. However, this could cause problems for your daughters.
Lenders want to know where the deposit for a property is coming from. If it includes money from parents, they will ask if it is a gift or a loan. If the answer is a loan, it could limit your daughters’ mortgage options.
As David Hollingworth of mortgage broker L&C puts it: “Many lenders will be uncomfortable with the use of a loan.
Any mortgage lender who accepts the loan as part of the deposit will assume that they require regular repayments and these will be included in their affordability calculations. Both of these factors could limit your daughters’ ability to get mortgages.
Another consideration if you choose to lend money is Inheritance Tax (IHT). Philip Rutter, partner at law firm Bishop & Sewell, says: ‘If the payment is a gift, it does not attract IHT on the death of the donor, so long as it survives for seven years from the date of the gift. Don.
“If it is a loan, then it will be repayable on the donor’s death if not repaid by that time – and will then form part of the donor’s estate for IHT purposes and potentially be taxable at 40%.
If you offer the money, another option to protect it is a prenuptial agreement between your daughters and their future spouses. Rutter says the agreement could “shield any gift and shield him from any claims in the event of a divorce.”
He adds: “Although prenuptial agreements are not legally binding contracts under English law, they will be respected in almost all cases as long as certain criteria are met, one of them being that they do not produce significantly unfair result.
“The problem is that you can’t force your daughters to enter into an agreement and even if they are willing to do so, their future spouses may not be.”
Which option is best will depend on how much money you want to give your daughters. If it’s a fairly small percentage of the purchase price, it may not be economical to spend too much time and money on payment protection.
But if it’s a significant percentage of the purchase price, it’s worth taking legal advice on asset protection. An altogether easier option may be not to give your daughters the money in the first place. You can still use your savings to help them buy a property, but you keep the money in your name.
Hollingworth says: “Some first-time buyer loans allow parents to deposit money into a separate savings account in their own name. This can allow the first-time buyer to take out a higher loan-to-value (LTV) mortgage – with the savings acting as additional security.
“The money stays in the parent’s name rather than being gifted, although there are requirements as to when the money is released.”
One such plan is the Family Springboard Mortgage from Barclays. This offers a fixed rate of 4.2% over five years for a loan-to-value ratio of 95% – or 4.25% for 100% no-fee.
You, the parent, would put 10% of the purchase price into a Barclays savings account linked to the mortgage. As long as all repayments are made on the mortgage, then you will get your money back after five years. The linked savings account is currently earning 3.25% interest.