Solicitor and family mediator, Donna Rose, discusses how parents can protect themselves and their investment whilst helping their children to get on to the property ladder.
The Bank of Mum and Dad. This a very common expression used where parents help to support their adult children to get on the first rung of the property ladder.
However, it is not just first-time buyers that need financial assistance. According to research by Legal & General in October 2020, 61% of the Bank of Mum and Dad went to the over 35’s. These people are potentially ‘next steppers’ moving to a larger property as their own family grows. Perhaps quite surprisingly, one in ten of those over 55 said that they would have had to delay a purchase without financial support from their parents.
How can I help my child get on the property ladder?
There are a variety of ways that parents can assist their children to buy their first home:
- Putting savings into a joint account
- Getting a joint mortgage
- A gift
- A loan
- Acting as a guarantor on a mortgage
Most parents that can afford to help their child buy a property will do so by gifting the shortfall in their house deposit and therefore increasing their child’s ability to borrow so that they can access a cheaper mortgage deal. Most lenders accept a deposit that has been gifted subject to documented evidence of where the money has come from, for example a bank statement.
When parents decide to loan the money instead of gifting, it may affect the mortgage deal. This is because lenders carry out quite stringent affordability calculations so if the money given is a loan requiring regular repayments this will be factored in when calculating the mortgage offer.
The solicitors dealing with the property purchase can draw up a Declaration of Trust. This is a document that sets out clearly who the money was gifted or loaned to and can importantly specify that it was to your child and not to their partner. This means that if the couple separate it can ensure that the child retains ownership of the gift and not the partner. If, however, the child then marries, the spouse could make a claim despite the Declaration of Trust.
We would always recommend that you seek legal advice if you are thinking of assisting your children to buy a property. If your child intends to marry, it would be advisable to get advice for them about entering into a prenuptial agreement to seek to ringfence the gift so that in the unfortunate event that the marriage ends in divorce, there is evidence of the gift.
At Amphlett Lissimore, we can draw up a declaration of trust as part of the conveyancing process. If you would like to know more about what this entails, please contact the property team on 020 8185 7458.