Sarah Cowley Partner and Head of the Residential Property Team of Coodes Solicitors explains what you need to know if you’re relying on family to help fund your mortgage.
“We’ve known for some time that a number of first time buyers rely on the ‘bank of Mum and Dad’. However, recent research from Lloyds Bank has uncovered a new trend with more than one in six homeowners apparently now reliant on support from family or friends to buy their next property.
“With the predicted increase in house prices for 2015 in the South West set to be 5.5% and a national average increase of 7% it’s no wonder more homebuyers are reaching out to their parents, or even grandparents, to help them progress on the property ladder. With the fewer mortgages available that can be backed by a guarantor and not everyone being eligible for the help to buy scheme, support from parents is becoming increasingly common.
“In order to ensure that the gift does not cause any delay to the process you should inform your conveyancer as soon as possible. At Coodes we ask this within our initial questionnaire so that details are brought to light from the outset.
“As part of the legal requirement for due diligence checks, your conveyancer will need evidence of identity for the donor as well as proof of funds. Supplying these at an early stage can reduce any potential delay. Details of the deposit may be set out in your formal Mortgage Offer from the lender, but the conveyancer is still obligated to refer the information they are supplied to the lender before exchange of contracts can be authorised.
“It is also recommended that the donor seeks independent legal advice as well as tax advice from an accountant. This is because the value of the gift will continue to be part of the estate calculations for seven years after the gift is made if their estate is liable for inheritance tax. This means that the buyer may need to repay the gifted money if the person who supported them becomes bankrupt. The lender may insist that an insolvency indemnity policy is put into place.
“If the gift is being made to a child who is purchasing with a co-owner, whether it be a partner, spouse or friend, the donor may also wish to consider requesting that the child enter into a Declaration of Trust with the co-owner so that it is clear from the outset who has the benefit of the gift. If the child and co-owner then choose to go their separate ways this will ensure the gift from the parents stays with the child it was intended for.”
For further advice, contact Sarah Cowley, Partner on 0800 328 3282 or firstname.lastname@example.org