Buying a home with the help of your parents
First time buyers are finding the only way to jump onto the property ladder is with the help of “the Bank of Mum and Dad." Parents help out their children to buy their first home by way of giving them the funds. This may be considered an early heritance with money that would be coming their way in due course and parents are happy to pass it on to their children who need it.
When funds for a house purchase are gifted or loaned, the buyer’s conveyancer will need to carry out additional checks alongside the usual conveyancing process.
The extra checks when house purchase funds are gifted or loaned include:
- EVIDENCE: asking for evidence of identity and proof of address in respect of each giftor.
- PROOF: Asking for proof of funds and evidence of the source of the funds.
- IDENTITY: Carrying out electronic identity checks in respect of each giftor.
- SEARCHES: Carrying out bankruptcy searches in respect of each giftor.
- CONFIRMATION: Asking for confirmation of the amount of the gift.
- GIFT or LOAN: Asking for confirmation that it is a gift, that no part of the gift is repayable, that each giftor will have no stake in the property, and that no giftor will live at the property.
- LEGAL ADVICE: Recommending that each giftor obtains independent legal advice. This is particularly important because:
- Making a gift may have inheritance tax implications.
- A gift may not be the best option from the funder’s point of view. It may be preferable for the funder to secure a stake in the property by means of a Trust Deed or mortgage, protected by an entry on the register of title. This will ensure that the property cannot be sold without the funder’s consent, unless the mortgage lender repossess it.
- COMMUNICATION: Referring the matter to any mortgage lender who is involved with the property purchase.
It’s a legal requirement to prove where the funds come from when you buy a property. Conveyancers have a duty to guard against mortgage fraud and money laundering and must take steps to ensure that all funds used to purchase a property have been acquired in a legal way. If all the boxes are ticked and the conveyancers have no suspicions, lenders are normally happy to lend where gifted deposits are provided, but may be more reluctant where the funder wishes to claim a stake in the property.
A ‘giftor’ is the legal term given to the person giving the financial gift. Have a look at our legal glossary of conveyancing terms for further explanations of the terms used in the conveyancing process.