How helping your kids buy a home can cause family feuds

With property prices putting homes well out of the reach of most young people, more and more homebuyers are relying on help from Mum and Dad.

In some cases, this help comes in the form of cash; in others, the parents co-own the home or underwrite the mortgage. But whichever route you take, you'll need to work out the details very carefully - or risk a family feud down the line.

The most important thing when giving financial help is to make sure there's a formal contract drawn up. It may seem unnecessary when it's just a case of family members, but things can and do go wrong.

In one high-profile case that hit the courts earlier this month, a mother and daughter fell out over the ownership of a £1 million Knightsbridge flat.

Ann Hermsen-Wilkinson, 72, wanted her daughter Caroline Hermsen to move out so that she herself could retire there. However,Hermsen, a 45-year-old events organiser, claimed that the flat had been given to her as a gift 20 years before. The judge ruled in Mrs Hermsen-Wilkinson's favour.
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Even when there's no falling-out with the family, handing over money without a contract can be an expensive mistake.

"A gift is a gift - once money is handed over, it is legally the possession of the person to whom it is given (the donee), and cannot be reclaimed, however strong the moral case," points out law firm Winder Taylor.

"For example, if the donee dies, the money, or the asset purchased with it, will form part of their estate and will go to the beneficiaries under their will, or (if there is no will) to those who inherit on intestacy."

And exactly this has happened. In one case, parents lent their son £150,000 to buy a home with his new wife, whom he'd only been dating for a few months.

Tragically, the son was killed just five weeks after getting married - and without having drawn up a will. Under intestacy rules, his property, including the money, automatically went to the wife, despite the fact that it had only ever been intended as a loan.

Similar problems can arise in the case of divorce, where joint property will be divided up. The answer is to make sure that the legal contract, or declaration of trust, lays out precisely exactly what belongs to whom in the event that a couple splits up.

And in the case of a loan, it should specify how repayments should be made, and what happens if one party wants to sell.

And remember circumstances may change. Research from law firm Slater & Gordon has revealed that one in seven parents that helps their child to buy ends up in unexpected debt, with a third saying it's affected their financial security.

"The majority of parents will want to help their children as best they can. But we have found that many relatives say that their act of generosity wasn't well advised and resulted in financial hardship or anxiety," says the firm's head of property, Stephen Lintott.

"Purchasing a property is the biggest financial investment most of us will ever make and when you add a third party to the equation it makes things more complicated."