First-time buyers: Using the bank of Mum and Dad
Recent reports show that first-time buyers now need a hefty average of £33,000 for a deposit on a house. Whilst there are many government schemes available, including Help 2 Buy, young people are finding it increasingly difficult to save anywhere near this sum of money.
So, who do they turn to? The answer is Mum and Dad.
Although a deposit takes up a large chunk of any initial savings you might have for your first home, many homebuyers underestimate the up-front money involved. You can typically expect to pay for the property deposit, mortgage arrangement fees, solicitor and surveyor fees, and any moving/decorating costs. All of which vary depending on your circumstances.
This year alone, parents will be stumping up £6.5 billion to help their off-spring buy property. By putting more towards a deposit, first-time buyers can secure more favourable mortgage rates and cheaper monthly repayments.
If parents decide to kindly loan or gift their children money towards a home, there are many crucial factors that need to be considered and made clear to all the parties involved.
Is this money being given as a gift?
Is this money a loan?
How will interests in the property and their funds be protected?
Will the mortgage provider accept deposit money given by parents?
Are there any implications on the parents’ tax and financial position?
For many parents, a deposit contribution is meant as a generous gift, with them having no intention of being repaid the money or claiming a stake in the property. If this is the route you plan to take, you will need to provide the mortgage lender with a Deed of Gift document signed by the person gifting the money.
If being given as a loan, you can take out a joint mortgage with your child or create a second mortgage against the property. Alternatively, another option may be to create a Deed of Trust which sets out the proportions in which the property is held. This covers your child should they separate from their partner (if it is indeed the case that they are purchasing a home with them).
If you’re unsure of how best to go about lending your child money for their first home purchase, speak to a member of our Conveyancing Team here at John W Davies Solicitors. We will gladly go through any issues you may have and discuss your options to ensure your situation is legally binding.