It is harder to lend money to people than you’d think, at least if you want to get it back.

The bank of mum and dad provides around a fifth of finance for house purchases in the UK, mostly unofficial or at least unrecorded and therefore unregulated. Part of that it because the regulation that exists makes the process of lending awkward.

To lend money in the UK, basically requires a person to register with the Financial Conduct Authority, a body set up to regulate the thousands of financial services firms and the financial market.

By registering as a credit broker most of the problems associated with lending to family members go away but the process takes 6-12 months, so by the time most people find out, it’s too late and anyway, it’s a lot of faff filling in forms etc.

So then they may look at what exemptions there are within the regulations, and yes, there is an exemption for non-business loans made to family members. Since most people making loans to help get their kids on the property ladder are non-business ie there’s no interest or other benefit to the parent, the lender, then that isn’t a problem for most people. It would be fine for our situation except the idea of family is defined in law, and would not include the fiancee/boyfriend.

He was a bit cross about that, a bit indignant that any loan we made to him would likely be unenforceable in law, and that’s really not somewhere we want to find ourselves. They’ve been dating two years. He’s a lovely boy. Still, let’s not be daft. The laws exist to prevent someone (anyone really) setting up as a loan shark and fleecing desperate people of their hard earned cash. It’s not reasonable or at least not as unreasonable as expecting your girlfriend’s parents to effectively gift you a couple of hundred thousand and feel good about it. When your own parents will not.

So we could lend the money but only to our daughter, making her the 80% purchaser and therefore 80% owner of the house they planned to share as tenants in common. Cue much soul searching and entirely valid (though fundamentally frustrating) feelings around whether or not he could proceed as the ‘minority interest’ stake holder. Until his uncle told him to get a grip, get his head out of his arse and grab the most favourable arrangement in the history of spoiled North London boyfriends ever. Quick.

So we’re all agreed. What next. Apparently we’ve taken far more care with this than most people already in having the discussion because the biggest problem with family loans and the bank of mum and dad, by far, is simply that they’re not documented. At all. Which leaves some huge problems down the line for people when mum and dad want their money back and their child doesn’t want to give it back. Or can’t. Or (God forbid) has died and someone else just doesn’t recognise that a loan ever exists and mum and dad can’t prove it was a loan rather than an outright gift.

And the friend of a friend who is walking me though all of this then points out that the loan agreement is actually a very straightforward thing to draft unless there’s anything weird going on. And that it probably isn’t necessary to secure it against the house, providing your kids are on good terms but perhaps more importantly providing the loan amount is a relatively small part of their parents estate. No one is going to refuse to repay a loan when it costs them a huge amount of their inheritance.

So we have agreed on a five year loan with no interest chargeable for the shortfall in the house cost, to be made to my daughter only, unsecured on the house, but drafted, signed, enforceable in law, with a minimum repayment a month but no maximum and no fines or penalty charges if it’s repaid early ie if she takes out a ‘proper’ mortgage to buy out the loan. The agreement is drafted and will be signed by parents and child, witnessed and a copy kept in the safe. If it all goes tits up then the agreement will be enforced.

It’s a bloody marvellous deal for her.

If she defaults we can go to the courts and ask for repayment of the capital amount. Her only asset large enough to make good the loan is her 80% share of the house so she’d then have to sell. Hmm. What about the boyfriend?

Well, he’s not part of the loan arrangement at all, other than needing to be okay with selling the house if she defaults.

The friend of a friend did point out that the tricky bit in law would be agreeing a declaration of trust (or cohabitation agreement) between my daughter and her partner, laying out the terms on which they planned to live together in the house they’ve bought. Will they take into account capital sums invested in renovating the house? What about shared running costs? What happens to dividing up the sale proceeds when the house is sold, the costs and the profits? Under what circumstances can they sell the house?

So having sorted out our best option for financing our daughter, we’re (or at least they are) now getting advice on a legal agreement for them living together, something that can probably be a precursor to any prenuptial agreement they may need.

If it sounds less than romantic it’s because it’s a lot less than romantic! But most arguments in marriage are because of money. Marriage is not especially romantic at its heart – it’s still basically a legal agreement based around property transfer and the laws that govern property.

Money can and often is used to control people, to limit and constrain them. It is often a proxy for love and attention in peoples thoughts. And it makes people nervous to talk about money so they tend to make assumptions and to push it to the back of their minds and relationships. It’s only when money gets tight, or runs out entirely that those assumptions come back to bite. Everyone needs to shine a huge light on that stuff before it gets to that point, not afterwards!

I am always going to be salty about the fact that his parents are unwilling to financially support their son as well as we propose to support our daughter but the biggest red flag in these conversations has been the difficulty that the boyfriend and his family seem to have about talking openly about money and finance. Ho hum. She loves him. He’s a very nice boy. he says we shouldn’t worry, that he’ll never leave her, never be unkind.

& I really don’t know how to break it to him that he’s not the one we’re worried about. If she leaves him, he will get tricky, whatever his current plans or beliefs.