24 June 2016
Home sweet home | 50 things to do before you’re 50
In the second article of our 50 Things To Do Before You’re 50 series, we focus on the hot topic of property, from how the “bank of Mum and Dad” can help the younger generation get on the housing ladder, to planning for retirement.
B P Collins’ residential property team of Chris Hardy, senior partner and property specialist, senior associate Martina Razaq, and senior associate Mike Wragg, together with Sarah McLoughlin, senior associate in the property litigation team, look at just some of the issues to consider.
“There’s no doubt the profile of the housing market has changed in recent years,” says Chris. “Whereas previously those in their 20s could scrape together a deposit and invest in property at a relatively early age, that’s often no longer the case, especially in areas like Gerrards Cross, where property prices are among the highest in the county.
“It means that many of the younger generation now choose to live at home for longer while they save, they sometimes ‘borrow’ money from their parents to purchase, or they decide to rent long-term, which also impacts on the housing and buy-to-let market.
“For those approaching 50, it can be a challenging time as they worry about their offspring and often have to help their own elderly parents think about downsizing and changing their own living arrangements.”
To help families consider their best options, Chris has the following useful legal advice:
Buying and selling property
By the time we reach 50, many of us will have already gone through the process of buying and selling a home at least once. Experience shows that no matter if you are a purchaser or a seller, when it comes to the legal documentation an experienced, local property solicitor will provide a much greater level of individual advice than an online legal service.
“Personal service is key,” says Chris. “Buying a home is likely to be the biggest single investment you ever make and you can’t afford to take chances by cutting corners on legal expertise. Finding out a new housing development is in the pipeline at the end of your road or you are suddenly liable for Chancel Repairs because someone hasn’t done their homework isn’t the type of surprise you need.”
A home of your own
For those in their 20s or 30s, today’s property prices mean buying a home of their own is more of a pipe dream than a reality, unless they can get help in the shape of a “loan” or advance on a future inheritance, often from their parents or grandparents.
Martina says: “We’re seeing plenty more parents or grandparents wanting to help out financially, but it’s important for both parties to know in the eyes of the law, a gift is a gift, and that’s something not everyone is aware of.
“This means those making the generous gesture have no legal right to call for its return in the future.”
One option, says Martina, is to draw up a Declaration of Trust, which can help to ensure the money stays within the donor’s family in the event of future problems leading to the property having to be sold.
Buying with friends
Another alternative is to pool your savings and buy a property with up to three other people, but there are strict rules and a lawyer can help you make sure there are no surprises if something goes wrong.
Obtaining a mortgage
When making a mortgage application, be honest with your broker or lender about where the money is coming from, especially if it is being funded by family members, otherwise there can be delays in the exchange or completion.
Investing in the buy-to-let market
If you are looking at investing for a future nest egg and an income in your retirement, purchasing a buy-to-let property can be a good idea, although be wary that tax changes announced in this year’s Budget have made this a more expensive option. In addition, you need to factor in the practicalities and costs of managing tenancy agreements and/or utilising a letting agent to manage the service for you.
Whether you’re planning on renting a property or if you’re a landlord, you must check the small print on the legal documents. Sarah, who acts for both landlords and tenants, says the key for all parties involved is transparency and simplicity of all charges involved.
She says some landlords charge extra ad hoc management fees on top of the original agreement and insist on using their own preferred suppliers for any work that needs to be done to the property, something which can push up prices.
“Our advice is two-fold. Landlords should make sure that when they engage a letting agent, they know what they are signing up for. That means reading all the terms and conditions in the documentation carefully and, if anything isn’t clear, talk to a lawyer for advice,” she said.
“For tenants, one of the key issues is to make sure that the landlord isn’t allowed to pass the cost of repairs on. There may be occasions when this is possible, for example if, through a tenant’s actions, damage was caused to the property.”
There’s a real trend towards multi-generational living as the “boomerang kids” return home at the same time as elderly parents need more care and those around 50 can be caught in the middle. For some families, the solution is to pool the family resources to either buy one larger house or extend an existing property.
“Investing in an existing property or buying a new home together which is big enough to cater for all your needs might seem like a good idea but it can be a legal minefield,” says Mike.
“If the property is sold, there could be disagreement about the ownership of part of the house or, alternatively, if the elderly parents need to liquidate some of their own money in years to come to pay for care home or nursing fees, they could find it very difficult to do so as you can’t sell ‘half’ a house.”
If that’s something you’re considering, it’s important to take both legal and independent financial advice in order to avoid potential family disputes in the future.
If elderly parents have several children to whom they wish to leave their estate, then selling their property to invest in living with one son or daughter can complicate issues. When the time comes, other siblings could put on pressure to sell the property in order to try to recoup some of their inheritance.
Potential broken homes
If you do decide to sell a parent’s property and buy one larger family home or use the money to build an extension to an existing property, make sure everyone is aware of the implications. Circumstances can change, such as if the younger couple run into marital difficulties and have to sell the house as part of a divorce settlement. This would effectively leave elderly parents homeless and without any equity of their own.
Talk to your parents about retirement planning
If an elderly couple’s money has been invested in a property rather than being set aside to pay for care fees, the authorities could potentially take a charge over the family house in order to recover money when it is ultimately sold. This means it is a decision that could come back to haunt the family in years to come and one which may also have inheritance tax implications in the longer term.
Take out a Power of Attorney
If you have elderly parents who are still living in their own property, at some stage this may need to be sold to fund care home fees. By taking out a Power of Attorney, you can ensure that if they are no longer in a position to manage the sale, you can take care of it for them.
Property ownership can be one of the most rewarding investments as you seek a happy home for your family, but if you don’t get it right, it can also be an expensive mistake.
Consulting a specialist lawyer will help ensure that when it comes to legal issues, you know all the building blocks are securely in place.