The plight of the would-be first-time buyer is well known in the UK, with the Bank of Mum and Dad now involved in roughly half of all starter home purchases. But despite the sums often involved, very few families put the terms of giving or lending that money in writing.
This week's Money Problem is from environmental consultant Giles, 39, from Surrey, whose parents stumped up £50,000 to help him and his girlfriend buy a home together. Now they've split up however, his mum and dad want the money back. So, unsure what to do, Giles asked Metro consumer champion, Sarah Davidson, for her perspective.
The problem
My parents gave me £50,000 as a house deposit gift five years ago when my partner and I bought our first home together. We bought the house as joint tenants, but unfortunately, we have since separated and the house has been sold. We are currently trying to divide the equity. My parents are now asking for the £50,000 back. They say it was always intended as a loan to get us on the ladder and now that the house is sold, they expect repayment. My ex-partner is furious. She says it was clearly a gift and she's entitled to half. I have nothing in writing either way. There was no loan agreement but there was also no formal 'gift letter' signed. It was just a bank transfer from my parents to my account. Who is right, and where do I stand legally?
The answer
This is one of the most common, complex and emotionally destructive disputes that the family courts deal with. When a relationship breaks down, the resulting financial scramble often pits parents against ex-partners, with you caught in the middle. Because you have nothing in writing, the legal outcome will depend entirely on how a judge interprets the circumstances.
In English law, when a parent transfers money to an adult child, there is an old legal principle called the presumption of advancement. This means the court starts from the assumption that the money was a gift, given out of parental love, with no expectation of repayment. If your parents want to argue that it was a loan, the burden of proof is entirely on them. Because there is no loan written agreement, no schedule of repayments and no interest charged, doing so would be extremely difficult.
There is another crucial factor here too: your mortgage. When you bought the house five years ago, your mortgage lender would have asked where the £50,000 deposit came from. In almost all cases where parents provide a deposit, the mortgage lender requires them to sign a gift letter or a declaration stating explicitly that the money is an unconditional gift and they hold no interest in the property. If your parents signed such a document for your conveyancing solicitor or mortgage broker five years ago, it'd be almost impossible for them to now stand up in court and claim they expected the money back, and the court would likely hold them to the declaration they made to the bank.
Even if your parents could somehow convince a judge that the money was a loan, the family courts draw a distinction between hard loans and soft loans. A hard loan is a commercial arrangement such as a bank loan or a credit card, which is strictly enforced. A soft loan is an informal borrowing from family or friends where there are no strict repayment terms and the lender is unlikely to take legal action if the money isn't paid back. In divorce and separation settlements, judges frequently decide that parental loans are 'soft' and effectively treat them as gifts anyway, refusing to deduct them from the matrimonial pot before dividing the assets.
Where does this leave you?
Legally, your ex-partner is in the strongest position. You bought the house as joint tenants, which means you own it equally. Unless you signed a Declaration of Trust when you bought the property legally ring-fencing the £50,000 deposit for you, the equity is split 50/50. And if the £50,000 is legally deemed a gift, which is highly likely, it forms part of the joint equity and she is entitled to her half. Your parents are in the weakest position, I'm afraid. Without documentation, their chances of legally forcing you or your ex to repay the money are slim. It's an expensive and painful lesson in why the Bank of Mum and Dad should always pay attention to the paperwork.
I'm guessing it's unlikely they'll be handing you another £50,000, but if they ever do, a simple Declaration of Trust arranged by a solicitor is an absolute must.
