The conveyancing world is seeing an increase in first-time buyers relying on the “Bank of Mum and Dad” to fund their deposits and enable them to step foot onto the property ladder. This is not surprising given that the property market is at an all-time high with prices increasing.
It’s not only first-time buyers relying on gift deposits but also “second steppers” are relying on their parents to help them buy their dream homes.
Gifted deposits also often mean buyers will have lower monthly mortgage payments and obtain more favourable mortgage offers.
When obtaining a gifted deposit, it is vital to understand any implications when your deposit is being gifted by a third party.
Usually, the gift is from a family member, most commonly a parent but sometimes a grandparent or sibling can also be donors. If the deposit is coming from a friend or distant relative, you should ensure you check with your lender at the time that you apply for your mortgage that any gift from a third party will be acceptable to them, to avoid disappointment.
If the gift is to be repaid at any time, this will be a loan and the lender’s requirements will be different. This could impact the lender’s decision to offer you a mortgage given that on the purchase of the property you will have another outstanding debt. Mortgage providers may also shy away from “loans” as the third party may potentially want to claim interest over the property if the loan was not paid off. Third parties can apply for a restriction to be noted on the register until their loan is repaid.
Although buyers may inform their brokers that they will be obtaining a gifted sum, the gift is not always noted on the mortgage offer. Therefore, is it imperative that we review our client’s source of funds and carry out our due diligence as we also act for the mortgage provider. It is a requirement that a conveyancer informs the lender about the gifted deposit and seeks the lender’s approval before exchange of contracts.
During the transaction your solicitor will request the donor to sign a declaration confirming their relationship to you; that the money is an unconditional gift which will not be required to be paid back and, (but not limited to) the donor will not reside at the property. The declaration will also state the donor will not have an interest in the property being purchased. At times some lenders may insist the donors obtain independent legal advice.
Your solicitor will also carry out anti-money laundering checks against the donor and request ID verification and proof of funds. The purpose of this is to acquire evidence as to where the money has come from (for example savings, investments or inheritance etc) and how it has been accumulated over time.
If you are purchasing a property with a gifted deposit and would like further information please contact Attwells Solicitors LLP on 0207 722 9898.