Borrowing Money From Family To Buy A House? A Word Of Caution

Managing to get onto the property ladder has become increasingly difficult over the last number of years and it is often well beyond the reach of young, first time buyers who are unable to raise sufficient capital for a deposit.

More and more often, first time buyers therefore find themselves having to ask their parents or even grandparents to give them the financial help that they require to buy their own property. At Nelsons, we have seen a considerable increase in the number of relatives, especially those who have retired, releasing equity from their homes or using monies from their pension lump sums or savings to help the younger generation.

This money is often willingly loaned to a family member to assist them in buying a property and there are rarely any strict terms for repayment. However, if their child or grandchild is in a relationship that then breaks down, the benefit of their money can be given in part or in whole to a former partner or spouse rather than remaining in the family. This is rarely what was intended and can cause considerable upset.

Legal agreements when borrowing money from a family member to help pay for a house purchase

In such a situation where a couple is separating or divorcing, to seek to argue that a family loan should be repaid will usually find little support. There is seldom any documentation to support the contention that the money was loaned rather than gifted because the parties involved are family and trust each other. To say that you always intended to repay your parents or for your parents to say that they had always expected the money to be repaid to them, will rarely be enough to convince the Court that the end of the marriage or relationship should signal repayment of the monies.

When family money is provided to children, whatever their circumstances at the time, it is therefore advisable for the investment to be formally documented, just as if it were an independent loan. All the parties should take their own legal advice, proper documentation should be drafted and entered into and the investment or loan should be recorded against the property register at H.M. Land Registry.

It is important to understand that the Court has a duty to consider all the relevant factors when determining the division of assets on divorce, particularly how the needs of the parties and any dependent children will be met.  A loan from a family member will only therefore be one of the factors the Court will take into account and without any supporting documentation, it is unlikely that a Court will believe that the monies have to be repaid, instead viewing it as a ‘soft loan’.  The funds will therefore remain in the matrimonial pot for division during the divorce.

Careful consideration should therefore be given and independent legal advice obtained before loaning or investing your hard earned savings with a family member, whether their relationship is unstable or not.

How can Nelsons help?

If you need advice on divorce or general family matters, please contact one of our specialist family law solicitors in Derby, Leicester or Nottingham who will be happy to discuss your circumstances in more detail and give you information about the services that we can provide. Please call 0800 024 1976 or contact us via our online form.

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