The Bank of Mum and Dad

Many young people look to their parents to enable them to purchase their first home or to move up the property ladder.
The solicitor acting on your purchase will need to know from the start how your purchase is being funded and if any money is coming from your parents then they will also need to know whether the money is a loan or a gift.
It will be difficult for you to raise a mortgage to purchase a property if the money coming from your parents is a loan. This is because mortgage lenders are worried that a parent may assert an interest in the property.
If the money is a gift and you are raising a mortgage then your mortgage lender will normally ask your parents to sign a declaration confirming that the money is a gift and that they have no interest in the property. Some lenders will only accept gifted monies if the person making the gift is a UK resident and the funds being provided are held in a UK bank or building society account.
Your solicitor will also need to establish the source of the funds. Are the parents’ funds from one source – for example an inheritance or a house sale – or are they from a number of sources or the result of savings over many years. Your parents may need to provide your solicitor with their bank statements covering the period during which the money has been accruing if the monies come from their savings.
If you are purchasing the property with another person whether this be a friend, a live in partner or your spouse or civil partner then your solicitor should discuss with you the preparation of a declaration of trust. If one of you is funding the purchase with monies from a parent then your solicitor should explain to you that you have the option of entering into a declaration of trust specifying the percentages in which you own the property. The declaration of trust can then reflect the greater financial contribution of one of you owing to the gift from your parents. If you do not have a declaration of trust then you are assumed to own the property in equal shares.
If you are just purchasing the property in your own name but have a live in partner or a spouse or civil partner then you may want to have a cohabitation agreement or a nuptial agreement so that any monies gifted by a parent can be ring fenced.
If you are purchasing a property whether or not this is with gifted money you should at the same time consider updating your will or making a will if you do not already have one. If you have received a gift then you may wish to return this gift to your parents in the event of your death or to your brothers and sisters or your children rather than to your spouse or civil partner.
At Dixon Stewart we can help you with any of the above matters.