While this can work well, it’s a good idea to consider some of the issues which may arise before you go into it. Nigel George partner in charge of the Estates department explains more.
In this age of “generation rent” buying a property with your parents may seem to be one way of resolving the problem. You may also be considering doing it due to the fact you have an elderly parent who is no longer able to live on their own. You have agreed with them that the best way of addressing this problem is if you pool your resources and buy a property together. While the inter-generational purchase of property can be successful, it is important to consider some of the issues which arise as a result.
Ownership of the Property
The first point to consider is who will own the property? If both generations are to have their name on the title deeds, then there is a need to consider in what percentage each party owns the property.
Parents can often be capital rich and income poor, whereas children are more likely to be income rich but capital poor. This may mean that the children’s share of the purchase price comes from having a mortgage on the property.
Where this arises, it’s important to consider who is going to be responsible for the mortgage payments. You also need to consider what is to happen if the mortgage falls into arrears due to either ill health, unemployment or the death of the major wage earner. Death or major disability arising through accident or illness is probably addressed by way of term assurance. While such insurance can be fairly clear-cut following death it is less so in relation to ill health. It is important that your Financial Advisor gives you clear advice as to the circumstances in which the policy will and will not pay out.
The sale of the property
Having just purchased the property, you may not be contemplating its sale. It is important however to consider in what circumstances the property can be sold. This can particularly be a point of contention for an elderly parent. They will have been persuaded to sell their home on the understanding that the new property which has been purchased is where they will spend their remaining years. Consideration needs to be given as to whether either party would be entitled to exercise any right of veto over the sale or whether there would be some limited period of time before a sale could take place. There should be some clear agreement as to the circumstances in which the property can be sold to avoid any dispute in the future.
Repairs and Improvements
All properties over time will need repair. One way of avoiding moving home can be to extend the property. What is to happen if one party wishes to build an extension and the other one does not? How will the building of any extension be finances? If it is going to result in the need for a larger mortgage to be taken out, is that mortgage sustainable? How will the construction of any extension affect the shares in the property?
If construction work is being carried out by a child direct, how is that reflected in the ownership of the property?
Who can live in the property?
Relationships form and break down. What is to be the position if an elderly parent forms a new relationship and wants their new partner to move into the property? Equally, if a single child has purchased a property with an elderly parent and then forms a relationship, can that partner move in? What if that partner has children? Again, the question of who can live in a property and whether either party is to have a right of veto is something to think about at the outset.
Death of the parent
What is to happen following the death of the parent? In the situation where there is an only child, there is probably little difficulty. What about the situation however where there a number of siblings all of whom share in the parents’ estate? How in those circumstances are the other siblings meant to receive their inheritance? There are a number of potential scenarios which can be considered:
- The property is sold, and the other children receive their share of the parent’s estate.
- Regard is had to the fact that the child living with the parent has taken on the responsibility of caring for that parent. As a result, the other children receive a smaller proportion of the parent’s estate. It may be that that share can be paid by way of raising further mortgage finance on the property.
- The child living in the property is given say two to five years to continue living in the property in order that they have time to rearrange their housing requirements or raise further mortgage finance.
- Other siblings receive a smaller sum. Perhaps merely whatever cash assets the parents have left. It being acknowledged by all parties that if the parent had gone into care, most, if not all of their cash would have gone in care home fees in any event.
Inter-generational property ownership can be successful. It’s important however that all parties go into the matter with their eyes open. There should be a written agreement in place which addresses the rights and responsibilities of all parties Hopefully the agreement will never be called upon. In its absence however any dispute which arises can be an expensive and time-consuming matter to resolve. An agreement can also help manage the parties expectations from the outset.