Making sure the bank of mum and dad is safe

9th October 2015

As house prices continue to rise in Staffordshire and across the UK, a recent report has revealed that one in 20 homebuyers now rely on financial help from their parents, or grandparents, to buy their home. However, extra precautions should be taken when borrowing or lending involves relatives.

Unsurprisingly it is first time buyers, needing to raise funds for a deposit to get them onto the first rung of the housing ladder, who receive the greatest amount of help from kind-hearted relatives.

According to the latest house price index figures from The Land Registry, released at the end of September 2015, the average house price in Staffordshire is now £140,884. With most mortgage lenders now asking for a minimum deposit of five per cent, buyers need to find an average deposit of £7,044 before they can even start to dream of picking the curtains.

Julie Tomasik, partner and head of residential property at Ansons Solicitors in Staffordshire, warns that buyers using money from relatives to fund part of their purchase need to alert their conveyancer and get their paperwork in place from the outset.

“Buying a house is stressful enough without delays because the proper procedure has not been followed,” says Julie. “Using an experienced conveyancer, who knows what is involved and can ensure that the necessary consents are in place at an early stage, is the best way to achieve a smooth transaction.”

Anyone contributing towards a property purchase will have to undergo several legal checks to comply with the money laundering regulations and provide evidence of their identity. Some lenders also ask for a letter of consent and clarification whether the contribution is a gift or a loan. You will need to make sure you have original documents, not copies, which can be problematic if the giver lives abroad or is on holiday.

The question of whether the contribution is a gift or a loan should be carefully considered. Affordability is just one factor, but you should also consider what happens if the property is later sold, for example as a result of a divorce, will you want your money back? An option is to make a formal agreement, such as a pre-nuptial agreement or a cohabitation agreement to clarify the terms for everyone involved.

There could also be tax implications to consider too, if the amount of the gift exceeds your personal allowance it could later be subject to inheritance tax. It might be an idea to review your will or make a codicil in light of the gift, if you are helping one child and not the others.

Taking independent legal and financial advice at an early stage is vital to protect everyone’s interests. Let your conveyancer know how you are funding your purchase from the outset and they can advise you accordingly.

For more advice on buying a property contact Julie Tomasik, head of residential conveyancing at Ansons Solicitors on 01543 267 988 or email Ansons Solicitors has offices in Cannock and Lichfield, Staffordshire.