When Rosemary*, an admin assistant from London, was 27, her parents lent her and her boyfriend £40,000 to buy a flat. ‘We’d already saved up £22,000 between us, soit was just to give us a better interest rate on our mortgage,’ she recalls. ‘We were really grateful but it didn’t feel that unusual. All of my friends who live in London and own a house have done it with help from their parents.'
A recent report from Legal & General found that parents lend more than £6.5bn a year to help their children buy a home, supporting the purchase of £75bn worth of property – and making the so-called ‘Bank of Mum & Dad’ the equivalent of a top 10 mortgage lender. The Social Mobility Commission reports that 34% of first-time buyers had help from their families – an all-time high.
But what happens when these parents decide they want their cash back? There has been a spike in parents taking their children to court over unpaid property loans, with three times as many cases last year than in 2016, a recent Telegraph Money investigation found. Separately, the number of cases of parents taking their adult child or child’s spouse to court to retrieve money has increased from around three a month five years ago to around 12 to 15 cases a month, according to Quanta Capital, a company that loans money to those pursuing such cases.
Rosemary is hoping that she won’t become involved in one of them because, four years on, her parents have asked her to repay the money they gave her. ‘My dad was made redundant a few months ago and is struggling to find work, and my mum only works part-time in a café because of health issues, so they’re struggling,’ she says. ‘It turns out that the £40,000 they gave us was the bulk of their savings. My boyfriend and I have done some sums and we’ve worked out we would have to completely overhaul our finances to pay them back.
‘We’re thinking of remortgaging our home at a time when we should be saving to have a baby. It’s been really stressful because we wouldn’t have accepted the money in the first place if we’d known they didn’t have much left. My boyfriend is annoyed because at least one of those cases at all times; it’s constant, and I’m usually acting on behalf of the parents. Often, they’re in their seventies, they’ve saved their whole lives for this money, and they feel entitled to it back.
Dad was made redundant and Mum has health issues. Now they want their £40,000 back.
‘The reason these cases end up in court with a big legal bill is that it’s difficult to provide evidence of the intention behind the money,’ adds Pepper. ‘What does it mean when parents say, “I’m going to help you out”? For the mother and father there might be the understanding that this is a short-term loan with no interest, but maybe their daughter assumes it’s a handout, and so doesn’t expect to pay it back.’
This was the case for Audra Wamsteker, 50, a solicitor based in London, who became embroiled in a bitter court battle with her father in 2018 after they reportedly had a falling out. Audra’s dad, Paul David, sued her over the ownership of a £740,000 house in Surrey and a £275,000 flat in East London. He claimed to be the ‘beneficial owner’ of both – despite them being in his daughter’s name – because he had stumped up the deposits for them and either ‘funded’ or made ‘contributions’ to their mortgages. But the judge found in favour of Audra, saying, ‘It is desperately sad to see a previously close and loving family having fallen out so spectacularly. It is perhaps not unusual for families not to document their financial and property arrangements.’
More recently, entrepreneur Karl Watkin, who had become bankrupt, attempted to sue his daughter, Kate, 37, to claim back some of the money he had gifted her to buy her first home. In a case that went to the High Court in June, Karl argued that he had the only interest in the proceeds of nearly £500,000 from the sale of his daughter’s properties, which he had bankrolled. But Kate told the court that her parents helping her on to the property ladder was in keeping with her ‘extremely privileged’ upbringing, and the judge ruled in her favour.
However, cases won’t always be awarded in the favour of the borrower from the Bank of Mum & Dad. Pepper advises anyone thinking of accepting money from their parents or in-laws to draw up something in writing, such as a trust deed or loan agreement. ‘The document doesn’t have to be complicated. It can be a very clear and simple statement of effect, so long as it is signed by all the parties,’ she says. ‘It just needs to contain details about the basis on which the loan has been made, what will happen to the money if one of the parties dies, or the child and spouse or partner split up, or if the parent needs the money back.
‘Parents give money out of love, support and wanting to help their children get on the property ladder, so they’re not thinking about the legal ramifications. But circumstances can change, people can fall out. It is much, much cheaper and less traumatic to sort it out at the outset with a legally valid document, rather than waiting and ending up in court.
*Names have been changed.
READ MORE: 10 Things you Need to Know When Buying a House in the UK with a Partner