Moral Money: our reader’s finances and family relationships are under pressure
Dear Moral Money,
My partner and I have recently had a baby, but our already-squeezed finances are being pushed to the limit by my partner’s stepfather.
Before we met, my partner’s stepfather gave him some money – more than £50,000 – to put towards a house deposit; my partner understood this to be a non-repayable gift.
However, his stepfather insists it’s a loan and – as we are in no position to pay it back – has said he’s going to add interest until it’s repaid. The terms of the loan were never put in writing, but equally, my partner says he’s no evidence of it definitively being a gift, either.
Had I known about this when we first got together, I’d have told my partner to sell the place so we could start anew elsewhere – but since my name has been added to the mortgage, and we’ve recently entered into a new fixed-term deal, we can’t sell up and instead have this extra debt hanging over us.
It’s also really putting a strain on the rest of our families – mine think the whole situation is ludicrous, while his family just wants us to find a way to sort it out without causing a big family fall-out.
We’re not sure what to do. I feel like the stepfather is profiteering off what was supposed to be a gift. He says my partner and his step-siblings will get a split of the money back after he dies – but with a small child to provide for, we could do with it now.
We’re desperate to find some kind of solution that won’t ruin our families.
Anon
Dear reader,
When I spoke to you on the phone, you mentioned that you didn’t find out about this loan until you had already signed up to start contributing to your partner’s mortgage – and it can’t have been a very welcome surprise.
Not only have the loan repayments added to your outgoings, it’s also embroiled you in some tricky family politics.
It’s a generous gesture to help you buy your first home, and it’s true that many parents who can afford to do it wouldn’t expect to get repaid.
The fact that your partner didn’t realise he was entering into a loan agreement suggests his stepfather didn’t make his intentions clear enough at the start.
Repaying just the loan itself is one thing, but the added interest seems to be what’s really adding insult to injury, as the stepfather could stand to make thousands of pounds above the sum he lent – money that your partner’s step-siblings could then benefit from if it’s split between them and your partner in his will.
But some readers may think you should repay. Your partner’s stepfather helped him on the property ladder after all; putting a roof over the head of your growing family.
Hopefully the price growth of your property will soon outweigh the sum he stumped up, increasing your household wealth for the long-term. So, getting his money back with a little extra to later distribute to his children and stepchild equally may be fair enough.
The interest rate he’s charging you is lower than what you’d get for a personal loan from a bank, and it’s nowhere near the current rate of inflation, so he’s effectively still willing to make a loss on his money – which you could argue is quite charitable.
The waters here are particularly muddied because nothing about this gift, or loan, was ever put in writing, which means no one has a proper idea of where they stand.
To get a bit more insight into the situation, I asked our resident legal columnist Gary Rycroft, of Joseph A Jones & Co Solicitors, for his advice.
“I’d firstly be interested to know the terms under which she’s been added to the mortgage,” he said. “Is she acquiring chunks of equity by paying in for the mortgage, or has her partner fully added her so that she has now jointly acquired the equity that he and his stepfather had already paid in?”
If it’s the former option, Mr Rycroft has suggested it’s somewhat unfair for you to be on the hook for a personal loan that’s essentially just your partner’s problem; it should be kept between him and his stepfather.
“If she’s been added jointly, she’ll have acquired a lot of equity in the property,” he added. “So paying a little extra interest as a result isn’t really something to moan about.”
In this case, everyone could benefit from getting some legal advice to set up a Declaration of Trust document.
“This can clearly set out what happens to the proceeds from the property if the couple were to move elsewhere, either together or as a result of splitting up,” Mr Rycroft said.
He added that your partner’s stepdad could also be incorporated into this declaration. “It would enable a statement that shows the contributions each person has made towards the property, who pays the mortgage, who benefits from the property payments and who is responsible for paying back the loan,” he said.
While this might not get you completely off the hook for repaying the loan, at least everyone will know where they stand – and hopefully avoid any family dramas come Christmas.
What do you think? Let us know in the comments below.