Legally Safeguarding The Bank of Mum & Dad

With spiraling house prices, strict mortgage requirements and stagnant wages, there’s one bank that’s helping more and more young people get on to the housing ladder. And it’s called the Bank of Mum and Dad.

Parents, who have the means to help, are providing the necessary cash to help their children buy their first home. But increasingly this often considerable investment has to come with strings attached. With this in mind, there are some salient considerations to be borne in mind.

Protect yourself and your child
Many parents would like to help their children onto the property ladder by giving them enough money to raise a deposit. However, this could leave you (and them) unprotected. For example, if your child and their partner separated, you could both lose the money. By loaning instead of gifting, your money is protected. And you can always make a gift of that loan later, when you feel more relaxed about the situation or their relationship matures.

Notify the lender
If you’re contributing to the property purchase by way of loan or gift, make sure your child tells their mortgage lender from the start as any third party involvement could impact the mortgage offer later on – often when other non-refundable costs have already been incurred (such as search fees, surveyors fees etc.).

There is an obligation on the solicitor acting in the purchase to notify the mortgage lender if any part of the purchase money is not coming from the borrowers of the funds and so it is important the lender is advised from the outset of the proposals to avoid bitter disappointment later.

Protect your beneficiaries
If you’ve borrowed the money to fund your child’s purchase, or simply used savings, this could affect what is passed onto your other children when you die. Ensure you have a Declaration of Trust which is clear about how the funds should be settled between all parties in the event of your death.

Register a restriction at the Land Registry
You must insist that your loan is protected by a restriction on the Land Registry Title to ensure your child (or their estranged partner) cannot sell the property without your consent. Whilst this is unlikely to happen, it is sensible to include.

Tax
If you see your contribution as an investment which will give you a return, remember that even if your name isn’t on the property deeds, any profit you make may be taxable as income tax or capital gains tax.

For confidential help and advice, please contact Sam Reid01392 209205. Email sam.reid@rundlewalker.com

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