Parents family soft loans

Soft Loans in Divorce

Soft loans are loans from a third party, usually a family member, made on very lenient terms to assist a party. Young adults have been coined the ‘generation rent’ as they struggle to buy their first house. Earnings for young adults are at an all time low whereas property prices continue to rise to unaffordable rates. A recent study by the Resolution Foundation and the Intergenerational Commission showed that millenials i.e. those born between 1981 and 2000 may be the first generation to record lower earnings than their predecessors, showing that today’s 27 year olds are earning the same as 27 year olds from 25 years ago.

Whilst mortgages may be more affordable today, the rise in house prices and lower loan to value borrowing from lenders mean that a large deposit is a must for generation rent to get on the housing market. Often, they will rely on family members to contribute towards the deposit i.e. soft loans and it is estimated that this year, parents will lend over £5 billion to their children to help them buy their first house (research by Legal & General and the Centre for Economic and Business Research). Parental support will help secure 300,000 mortgages and assist with property purchases valued at over £77 billion.

But what happens when one parent provides a soft loan to their child, being one half of a married couple and then that couple divorces? For an example, where a husband’s father lends money to his son to assist with the purchase of the matrimonial home and the father seeks repayment of the soft loan from the sale proceeds. In these situations, the court must determine the issue during the financial remedy proceedings so that the correct share and resources available to both parties can be established.

Where there is a dispute about the loan given to a spouse, the third party i.e. the father in the example above, can be joined into the financial remedy proceedings so that the court can determine the issue. The spouse seeking to rely on the loan will need to provide evidence to support his case that the monies were a) given to him by the third party and b) that they were given to him as a loan rather than a gift.

It is prudent for the person providing the loan as well as the party receiving the loan to get independant legal advice and to ensure that protective measures are in place should there be a dispute over repayment of it at a later stage. If you need advice on soft loans, speak to one of our specialist family solicitors. Contact us on 01234 889777 for a free consultation.


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