Son and girlfriend house purchase

CLIVEHAM

Hi

A work colleague has put a question to me. His son is living with his girlfriend in rented accomodation. My colleague has saved up a decent sum on money to help his son buy his first property but has a concern if he gives the money to his son and he and his girlfriend buy a house in joint names. His worry is that should the relationship not last the girlfriend would have an entitlement to a share of the equity which would have arisen from the lump sum that he intends to give to his son.

Is there any way to avoid this? One idea would be for my colleague to buy the house in his name and rent it to his son or alternatively buy it jointly with his son and leave the girlfriend off the deeds. However, I guess that this might cause capital gains issues.


Does anyone have any thoughts on how to proceed and the benefits or downsides of any options?

Strapped

They just buy it in unequal shares. No need for your "friend" to complicate matters. Either the son is mature enough to make a property purchase with a girlfriend or he isn't.

Guest101

Yes you simply state the share when it's purchased. The solicitor will register these shares.

Im assuming mortgage is in both names too?

RAS

Two possiblities

1. Deed written that allows son to take deposit (or deposit pro-rata) from sale and then splits the remaining equity equally (assuming equal payments in).

2. Buy the house as tenants in common with son having larger portion to allow for deposit. Richard Webster described a calculation he uses that respects the fact that the party with the smaller portion will increase their percentage of the equity over time.

In BOTH cases, unless the parties marry, they need a deed which clearly states the process for sale if they split up.

zzzLazyDaisy

Depending on how long the son has been living with the girlfriend, how stable the relationship is, and her own financial situation, it may also be worth considering whether the son should buy the house in his sole name.

Of course if he needs her financial contribution in order to obtain a mortgage, then clearly that would not be an option. In that case the deposit can be 'ring-fenced' and protected by a deed of trust, with the remainder of the property being held in equal shares (or however they choose to allocate the shares in the property). Their solicitor will advise on the legalities.

martinsurrey

zzzLazyDaisy wrote: »

Depending on how long the son has been living with the girlfriend, how stable the relationship is, and her own financial situation, it may also be worth considering whether the son should buy the house in his sole name.

this can cause problems, even if he doesnt NEED her to get a mortgage

If he buys the house in his name, but she contributes financially to the upkeep of the home (paying contributions to the mortgage, even though he doesnt need them), she has a claim to some equity in the house, and lawyers will have an expensive field day.

A deed of trust eliminates all of this.

zzzLazyDaisy

martinsurrey wrote: »

this can cause problems, even if he doesnt NEED her to get a mortgage

If he buys the house in his name, but she contributes financially to the upkeep of the home (paying contributions to the mortgage, even though he doesnt need them)

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If he bought the house in his sole name, with her co-habiting, but not being on the deeds, standard advice is always that she should NOT contribute to the mortgage, or to any significant home improvements such as an extension to the property, precisely to avoid her obtaining a beneficial interest in the house. It is fine for her to contribute to food, utilities, furnishings etc as this cannot result in her acquiring a beneficial interest in the property.

My point was, it is necessary to take into account the length and stability of the relationship, and not just assume that because they are living together in rented accommodation, it automatically follows that the house purchase must also be in joint names. There may be circumstances in which a purchase by the son in his sole name, with gifted assistance from the parent may be more appropriate.

lb364

RAS wrote: »

2. Buy the house as tenants in common with son having larger portion to allow for deposit. Richard Webster described a calculation he uses that respects the fact that the party with the smaller portion will increase their percentage of the equity over time.

Can anyone point me in the direction of this calculation, please? I can't get my head around how their percentage would increase over time?

martinsurrey

lb364 wrote: »

Can anyone point me in the direction of this calculation, please? I can't get my head around how their percentage would increase over time?

son puts in 100% of the deposit (25% of the purchase price) but they pay the mortgage equally.

so on purchase he "owns" 100% of the equity.

by the time the mortgage is paid off, he has paid 25% plus half of the mortgage capital, = 25%+37.5%=62.5%

and she has paid half of the mortgage capital 37.5%.

so every mortgage payment alters the equity split.

lb364

martinsurrey wrote: »

son puts in 100% of the deposit (25% of the purchase price) but they pay the mortgage equally.

so on purchase he "owns" 100% of the equity.

by the time the mortgage is paid off, he has paid 25% plus half of the mortgage capital, = 25%+37.5%=62.5%

and she has paid half of the mortgage capital 37.5%.

so every mortgage payment alters the equity split.

So presumably he still owns exactly 25% more than her at all times? And in the case of tenants in common the split (recorded on the form) would be 62.5:37.5?

I'm in a similar situation so just wanted to double check

little_miss_muppet_face

my friend and her boyfriend moved into a new mortgaged house recently, she put down the deposit from the sale of her previous house (£50k), he put down nothing, the solicitor just wrote that into the deeds, or whatever they write it down in, so if the worst happened and they split up, she would first get her £50k back, and the remainder of the profit, (if any) would be split 50/50..