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FTB - how to recognise parent's interest

Hi I am a new poster - I registered specifically because I couldn't find any info on this subject on these forums.

The situation:
My girlfriend and I have had an offer accepted on what is pretty much our dream house. My parents have always said they would give me the 10% deposit, which I am very grateful for.
Now that all the legals are going through, we have to formally apply for the mortgage, although we have an agreement in principle with a mortgage lender.

My parents suggested their 10% interest be recognised by way of a second charge. The 10% will be a gift to me but in case my girlfriend and I ever broke up, they want to be protected and not lose the monetary value of that 10%.

But most lenders and brokers tell us that second charges are not allowed under their mortgage agreements and so we considered a "declaration of trust", recognising my parents interest. As part of the formal mortgage application the bank require us to declare that no-one else has an interest in the property. If we go through with the declaration of trust, this will not be true. We are certainly not going to lie on the application.

The question:

I hear about parents helping their children with deposits to get on the property ladder all the time. If their children are like me, unmarried and co-habiting with their girlfriend, how do they get their share of the property recognised legally in case their children’s relationship ends?

My girlfriend and I are very open and very secure in our relationship to the extent that we talk about everything. She works in law and suggests that we go down the route of me having a 60% share and she a 40% share. This seems overly-complicated to me but if it is the only way to protect my parents then that is what we will look into.

So a bit of a legal query there, but any help would be really really appreciated. It is 8:20pm on Tuesday and replies or suggestions before tomorrow would be great (although I am asking a lot!)

Thanks
«1

Comments

  • lincroft1710
    lincroft1710 Posts: 19,090 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    edited 28 July 2009 at 8:49PM
    I was very secure in both my relationships which led to marriage which both ended many years ago. Bear in mind that a 60/40 legal split could be a 60/40 split of a minus asset, you and parents could end up worse off if there was a break up and property prices had dramatically fallen. Otherwise it does seem a possible situation.
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  • bingibongi
    bingibongi Posts: 83 Forumite
    Just save up a 10% deposit - then your parents dont need to be involved.

    If the 10% is genuinely a gift why do your parents want to secure their interest - surely they havent got any interest. Once a gift is made it is non returnable.

    If you have a declaration of trust you will have to hold the property as tenants in common and will both need to draw up wills leaving your respective shares to each other. But wills can always be changed so this is not a perfect solution.
  • nervousftb_3
    nervousftb_3 Posts: 395 Forumite
    my partner and i put very unequal amounts into our house deposit (he put in much more than i did), and so our declaration of trust states that if we were to split and sell the house, then he would get £x out of the equity first, and then the remaining amount is to be split 50:50. that way it is not a % of the house value, but the exact amount he put in. in the event of negative equity, the debt would also be split unevenly so that he go £x less debt than me, if that makes sense! if you were to do a declaration in this way, then your parents don't have to be mentioned (as long as they trust you to pass the money on to them when the house is sold :p).

    unfortunately there is always the risk you will be in negative equity and so would have no equity/money with which to pay your parents back - but do they want the money back? what if you stay together forever living in that house; would your parents ever ask for the money? you need to discuss all these options with them and see how they feel about it. if they do want the money, then you could perhaps have some sort of agreement (perhaps drawn up by your solicitor but not linked to the mortgage) that in this sort of situation you and your girlfriend would be in debt to your parents and still need to pay them back.
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  • We were in the same situation and our solicitor suggested we draw up something with my partner's parents which was in effect a formal IOU. If we were ever to split up I have signed that I am responsible for paying half of that back to his parents.
  • gemstars
    gemstars Posts: 515 Forumite
    Pdocherty wrote: »
    We were in the same situation and our solicitor suggested we draw up something with my partner's parents which was in effect a formal IOU. If we were ever to split up I have signed that I am responsible for paying half of that back to his parents.

    Does anyone know if this would work if the poster had owed half of the money to their partner? It seems a lot easier than a declaration of trust.
  • I think that is possible - the solicitor also advised us he could draw up something formal between the two of us, which we haven't got round to yet. (Too busy with DIY!)
  • We have decided to go 60/40 split in my favour, which my girlfriend is happy with. This means we will hold the property as tenants in common, not joint tenants (i.e. 50/50). Obviously I won't draw up a contract with my parents! But this way they are protected. It seems to be the only way, as very little info is forthcoming from lenders. Thanks for the helpful replies.
  • alm721
    alm721 Posts: 728 Forumite
    Part of the Furniture Combo Breaker
    Sounds ok but shouldn't it be a 55 % / 45% split? so your gf would get her 45% and you would get your 45% plus your parents 10 %? This is of course assuming that you and you gf are spliting the remaining 90% equally?
  • GSXRCarlos
    GSXRCarlos Posts: 830 Forumite
    Part of the Furniture 500 Posts Name Dropper Combo Breaker
    i agree with alm721
  • mr_fishbulb
    mr_fishbulb Posts: 5,224 Forumite
    Part of the Furniture Combo Breaker
    I was very secure in both my relationships which led to marriage which both ended many years ago.
    Errrrr, you are only supposed to get married to 1 person at a time.
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