The bank of mum and dad is still open and since 2010 there’s been a 14% increase in first-time buyers relying on their families for financial help when purchasing a property.
The desire of young people to own a home is now more of a dream than a reality with the number of 25 – 29 year olds owning a home dropping by more than half, from 63% in 1990 to a current low of 31%. Even though mortgage interest rates still remain low, they struggle to save the deposit needed, to get on the first rung of the property ladder. And for those who don’t have parents in a position to offer financial support, the likelihood of owning a property is small. There’s also an indication from a report produced by the Anglia Ruskin University, that if the economy weakens, the proportion of first-time buyers being supported by their families will continue to be around one-third until 2025 and then this figure is expected to grow to around 40% by 2029.
With more house purchasers reliant on ‘gifted or loaned deposits’ – a sum of money that is given by a family member to form all or part of a deposit for a house purchase – we have seen a rise in this sort of financial arrangement and as part of the legal process we recommend a formal written agreement is drawn up on any ownership rights or repayment plans. We have a checklist of points that we apply in these situations.
- Check if the money offered by a third party to enable the purchase of the property is a ‘gift’ or a ‘loan’.
- The person ‘gifting’ the money should seek independent legal advice to understand they will have no interest in the property and no right to get their money back.
- The person ‘loaning’ the money should seek independent legal advice to drawn up a repayment plan or consider whether a legal charge over the property is more advantageous. A legal charge over the property allows for the ‘loan’ to be repaid on the sale of the property in the future.
- Check that the mortgage product won’t change because of the ‘gifted’ or ‘loaned’ deposit.
- Check to see if the person ‘gifting/loaning’ the money will need to complete a gifted deposit letter – sometimes lenders have their own form to complete.
- Make sure the person gifting the money has a bank statement or something to confirm where the ‘gifted/loaned’ money is coming from (standard money laundering checks).
For any advice relating to ‘gifted’ or ‘loaned’ deposits, call Battrick Clark’s property law experts on 0117 973 1391.