First-time buyers and the bank of Mum and Dad


Recent reports have shown that first-time buyers now require an average of £33,000 for a deposit on a house. Understandably, young people are finding it extremely difficult to save this amount of money – so, what can they do? The Government scheme Help 2 Buy is one sensible option, but a record number of first-time buyers are now relying on the ‘Bank of Mum and Dad’ in order to climb onto the property ladder, new research has found.

The most common way parents help out is by giving their child some, or all, of the required deposit to qualify for a mortgage. Parents who want to help their children with a deposit can either gift them the money, or lend it to them. At present, there are no immediate tax implications as you can give as much money as you like to your children tax free. However, in the future any gift you do give could be subject to inheritance tax if you pass away within 7 years.

If parents decide to kindly contribute in order to help their children buy a home, there are questions that need to be considered so all parties are clear of the process.

  • Is the money being given as a gift?
  • Is the money a loan?
  • How will interests in the property and their funds be protected?
  • Will the mortgage provider accept deposit money given by parents?
  • Are there any implications on the parents’ tax and financial position?

Gifting

For many parents, a deposit contribution is meant as a generous gift, with them having no intention of being repaid the money or claiming a stake in the property. If this is the route taken, the mortgage lender will need to be provided with a ‘Deed of Gift’ document signed by the person gifting the money.

Loaning

If simply giving them money is not an option, you can loan the money and charge interest each month. If interest is charged, it would need to be less than the market rate for the loan to help. Think about setting down a repayment schedule at the start and formalising the arrangement via a ‘promissory note’ which would need to be drawn up by a property solicitor.

A ‘Deed of Trust’ can be drawn up by a solicitor setting out how much money is contributed by the parents and how the money will be given back if the child sells the property in the future.

Further advice

At PGM Solicitors we are experienced in all aspects of the buying and selling of properties, including dealing with mortgage companies, gifted deposit arrangements and family trust documents.

Please call 01792 468684 or email enquiries@pgmsolicitors.co.uk.

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