Parents will hand over a total of £5bn to their children this year to help them get on to the property ladder, according to research done by the Centre for Economic and Business Research for Legal & General. This means the “Bank of Mum and Dad” will help to finance a quarter of all mortgage transactions carried out this year. If a single business advanced that much money, it would be a top-ten mortgage lender in the UK.
However, parents and children need to be aware of the ins and outs of such an arrangement, say solicitors and estate agents Miller Hendry. Buyers must disclose to a solicitor and lender how the balance of the purchase price is being provided. When initially inquiring about a mortgage, they should tell the lender if their deposit money was a gift from their parents. Lenders may require a letter from the gift’s donor confirming that the deposit is non-refundable and unconditional. They may be less likely to approve a mortgage offer when money has been loaned rather than gifted (in 57% of cases, money is given as a gift).
Some providers may only accept gifts from family members as deposits. Others might stipulate that donors are UK residents with funds held in a UK bank or building society. (Meeting money laundering requirements is often the main reason behind these restrictions.)And it may also not be possible to use a gift as a deposit on a buy-to-let property. Finally, it’s important to consider the tax implications of such a gift. For example, if a parent does not survive for seven years after the gift is made, the money might be eligible for inheritance tax.