First time buyers turn to the bank of Mum & Dad

1st September 2010

Assisting your offspring with the deposit on their first property is in many instances the only opportunity available for them to get onto the property ladder.

Whilst this can be a good idea, there are certain precautions which should be considered. Julie Tomasik residential property legal executive at Lichfield and Cannock law firm Ansons Solicitors explains.

The property market has been through a difficult period, however there are 'green shoots' emerging with banks extending their lending and more mortgage products coming onto the market.

This coupled with lower house prices is making it an ideal opportunity for the first-time buyer to get onto the property ladder.  The one potential stumbling block is that lenders are still requiring a high deposit, normally in the region of 25% of the property price, which very few young people are able to meet.

With it being unlikely that a 95% mortgage will be widely available anytime soon, many young people are turning to the 'bank of Mum & Dad' for assistance with a deposit.

As property prices are low many parents may consider it worthwhile to either gift or lend the deposit to a child.  However, gifting or lending the money without proper advice could lead to very real problems in the future.

Any proposed lender would have to be made aware of a gifted or loaned deposit and confirm to the borrowers' solicitor that they are happy to proceed with their lending in the light of such information.

In the case of an outright gift, should the parents die within 7 years then there could be a potential Inheritance Tax liability for the child to pay.  If the money is being supplied as a loan then it is essential that a formal legal agreement is entered into to prevent confusion and to protect the parent's money.  This can be done either by putting into place a loan agreement or trust deed and would protect the parent from such scenarios where the child's marriage subsequently breaks down and the courts order the equal division of the equity within the property meaning the parent could potentially lose half of the loaned amount.

A trust deed can also set out the basis on which the loan has been made, what will happen to the money in the above scenario, or if one party dies, or if the parent requires the money back.

Taking the correct steps at the outset can save time, money and heartache.

If you would like further information please contact Julie Tomasik on 01543 466 660 or email

Ansons Solicitors' residential property department deals with all the legal aspects of buying and selling residential properties and also advises on buy-to-let arrangements, re-mortgages, registered and unregistered land issues and the transfers of equity.