A survey by Aviva found that one in three UK homes are ‘multigenerational’. In other words, they are occupied by adults from more than one generation. In many cases this is simply grown-up children continuing to live with their parents.
There’s also a growing number of instances where generations pool resources and buy a house that they’ll all live in. There are many advantages to this arrangement – but there are also some important legal and financial considerations.
Buying a Multigenerational Home
Mortgage applications are more complex when multiple generations are involved. Let’s assume a situation where an older couple plan to buy a home jointly with a son or daughter and their partner.
Often, the older generation will use capital from the sale of their existing home to buy a share of the new home. The younger generation will probably need a mortgage.
Most mortgage lenders have an upper age limit for lending so it is impractical for all four names to be on the mortgage agreement. Any mortgage on the property will, therefore, probably have to be in the names of the younger couple – as will the title registered with the Land Registry.
The older couple will have to sign a ‘gifted deposit’ letter to say that they are giving their share of the cost as a gift to allow the purchase to happen.
Protecting Your Contribution
In an ideal world, the older couple would protect their share of the property through a Declaration of Trust to specify the percentage of the property they will own. Unfortunately, most mortgage companies don’t like these arrangements. Some have even been known to terminate mortgage applications when presented with a draft Declaration of Trust to approve.
Lenders are more likely to accept a second charge being put on the property. This is a legal document registered with the Land Registry. It protects your investment and ensures that you can get your money back when the property is sold. It doesn’t, however, give you a ‘share’ of the property. If the value of the home increases you are only legally entitled to get back the sum you put in.
Depending on the terms and conditions of the mortgage it may be possible to put a Declaration of Trust in place after completion. This may trigger an additional Stamp Duty Land Tax liability as a share of ownership is, in effect, being transferred.
Things to Consider
If you’re thinking about a multigenerational house purchase you need to consider the interests of any other children you might have. You should take specialist advice on how to update your wills and estate planning.
You also need to think through what would happen if the younger couple divorced or were unable to keep up with mortgage repayments.
As you can see, these arrangements are much more complex than a standard conveyance. It’s a good idea to talk to a specialist legal representative at an early stage. If you have any questions about multi generational home buying, PowellsLaw will be happy to help. Contact us on 01934 623 501 for more information or email helpforyou@powellslaw.com.
