Getting onto the property ladder is tough and many first-time buyers rely on a gifted deposit from parents in order to make this crucial first step into property ownership. Because loans must be repaid, mortgage companies consider them in determining the affordability of a particular individual’s circumstances. Therefore, when a deposit is gifted, the person giving the money must confirm that they have no legal interest in the property and no wish to have the money returned at a later date.
What if the first-time buyer plans to co-own the property?
Often, parents giving their child money for a house deposit will be wary of doing so if their child is planning to purchase the property with a friend or a romantic partner to whom they are not married. This is because by living as tenants-in-common , future disputes that force a house sale could result in an equal apportionment of property value, thus failing to acknowledge the unequal value of the deposit that was gifted to one party to enable the purchase.
One way of protecting against this eventuality is to sign a Deed of Trust.
What is a Deed of Trust?
A deed of trust is a legal document which details the conditions under which the property is purchased. It can include provisions for how the value of the property will be split should it be sold at a later date. This allows co-owners to record their initial contributions, apportionment of ongoing costs and maintenance, responsibilities and consequences for defaulting.
A Deed of Trust is also valuable for estate planning purposes as it details what will happen to either co-owner’s share in the event that they pass away. It provides legal protection and clarity, making it a worthwhile consideration for those purchasing property with a gifted deposit.