The Darker Side of Home Buying

“The only way I’ll ever be able to buy a place is when my parents die and I inherit!”. Sounds macabre, doesn’t it? But is it also uncomfortably familiar? Property Solicitor Lexie Jacobs explains.

It’s common knowledge these days that the average age at which people buy their first property is rising. Average house prices are increasing, and have been doing so steadily for years. Many renters find that they could afford mortgage payments but struggle to save the money required for a deposit, putting the day at which they can buy property distinctly out of reach.

The newspapers are full of “the Bank of Mum and Dad” helping kids out with their property buying – but no one talks openly about the other side. The parents who cannot afford to help their children out during their lifetime for a variety of reasons. They are likely to own property which was bought for tens of thousands of pounds (as opposed to the hundreds of thousands it costs now).  It seemed like a fortune when they initially bought, but now they are sitting on property worth hundreds of thousands of pounds. They may be cash-poor but property-rich in that respect.  It also means that, upon their death, their children can sell the property and walk away with a sizeable deposit.

There are other options. Most people expect to buy property solely on their own or to buy property with their spouse or partner as somewhere to live together. What is not often considered is the possibility of buying a property with a friend or colleague. Property can be legally held in the names of up to four people. If a group of four friends or colleagues pooled their savings together, they may find that they could obtain a mortgage that bit more easily and afford a reasonable start on the housing ladder. Based on the premise that property prices generally will go up over time, after a couple of years, everyone has built up more equity in the property and has a larger deposit with which to go off and fund a purchase in their own name if they want to.  

What happens if they fall out or someone wants to move on but others don’t want to sell the property? All the property owners can enter into an agreement known as a Declaration of Trust. This agreement sets out who put how much in, how any sale proceeds are to be divided in the event of a sale as well as potentially set out the basis upon which one party can “buy out” the other party’s interest. This agreement is often prepared as part of the house buying process.

There are many who have only been able to get on the property ladder due to receiving an inheritance and can see no way they could have achieved property ownership without it. There are many who cannot see the point in struggling to save an unrealistic amount for a deposit when they know that in the fullness of time the issue will resolve itself in the form of an inheritance. Granted, the anticipated figure might be somewhat reduced if the parents have had to fund nursing or care home placements, but a significant number of purchases will be inheritance funded.

Thomas Picketty, author of the bestselling book “Capital in the 21^st Century”, concludes that individual’s living standards will be determined less by their skill and effort and more by the bequests they receive. Whether this is correct or not, the question must surely be that whilst inheritance decreases wealth inequality and increases wealth distribution, the level of house prices as they are now in comparison to the Inflation Price Index means that inherited wealth will surely be absorbed into property.

As a nation, we don’t like to talk about death. No-one wants to think of the day their parents are no longer around and no child likes to admit their parents are ageing. The discussion about inheritance and what we might use it for? It just feels downright mercenary.  Maybe though, we should discuss it more…

However, none of this detracts from the truth:

Mum. Dad. We love you, but when you go, we’ll start house hunting on Rightmove for our forever home!

MORE INFORMATION 

For more information on residential property, how to get on the housing ladder and Declarations of Trust, please contact a member of our Residential Property team for impartial legal advice. Call on 01708 229444 or email us using our contact form.This article was written by Lexie Jacobs, Associate at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of March 2018.