“BANK OF MUM AND DAD”-PROPERTY
The ‘Bank of Mum and Dad’ is now one of the top 10 mortgage lenders.
A gift or a loan?
At the outset of your purchase, we will ask you how the purchase is being funded. If your parents are funding the deposit (or part of it), we will be asking for your parents to confirm whether the money is a gift or a loan. In most cases, the money will be gifted. Most high street mortgage lenders would not accept the money being loaned.
When the money is being loaned, we would usually insist that the parents seek their own independent legal advice because the parents may wish to formalise the terms on which the loan has been granted (to future-proof against any change in circumstances on either side) and safeguard the repayment of the loan by acquiring a security interest in the property. Additionally, parents may want to enter a restriction on the title to the property so that the property cannot be sold without their consent. The loan will need to be disclosed to any lender lending against the purchase, and, provided that the lender consents to the loan, any security interest acquired by the parents in the property would be secondary to that of the lender.
Having proper loan documentation from parents can also be important if the couple are married and later divorce.
Parents do not need to be concerned that the loan to an adult child to purchase a property will bring it within the additional / higher rates of stamp duty land tax as it would be exempt.
If the deposit is being gifted mortgage lender’s requirements will vary but we will generally need to provide the following information to the mortgage lender:
- Confirmation of the relationship to the buyer-The lender will want to know the relationship of the person gifting the money for the purchase-most high street lenders will accept gifts made by parents, spouse, cohabitee or child, and some will be comfortable if the gift is from another relative (such as a grandparent, sibling or aunt), very few, if any, would accept a gift from an unrelated third party such as a friend or an employer.
· A declaration confirming the monies are being gifted-most lenders will ask that a declaration is signed confirming that the money being provided is a non-refundable and unconditional gift, and that they have no interest in the property.
· Bankruptcy searches – against any parties contributing towards the purchase price.
Anti-Money Laundering Regulations
Before receiving any monies being gifted we will have to obtain ID in respect of whomever is gifting the deposit and conduct a risk assessment which would include establishing the source of monies being utilised towards the purchase.
If the funds come from one source such as the sale of a house, a pension drawdown or the sale of shares, it will likely be easy to establish where the money has come from by checking the relevant documents which would include a bank statement showing the money and a completion statement.
If the money has been accrued over a longer period of time or emanate from multiple sources, it may take longer to verify the source of the money. If the money is from savings, it may be necessary for the bank statements to be provided covering the whole period over which the money has been accrued.
Family Law Issues
There may family issues to consider when funds for a purchase is being gifted or loaned, particularly in relation to protecting any parental contribution in the event of a divorce or relationship breakdown. Should you need some further advice we would be able to refer you to own of our specialist family law practitioners.
You may also need to consider updating your will to ensure that any monies gifted or loaned are passed back to family members if that is the intention. Should you need to make a will or revise your current will then we can refer you to a member of our Wills and Probate department who will be able to assist you with this.