There have been items in the press recently about how the “Bank of Mum & Dad” is now the 10th biggest UK mortgage lender as buyers are increasingly relying on financial assistance from parents, or other relatives, to help them buy a home of their own.
Joanne Seeney, Associate Solicitor at The Wilkes Partnership in Solihull, who has over 20 years’ experience of dealing with all aspects of residential property transactions, looks at issues to consider whether you are a parent thinking of providing funds to your children, or a buyer hoping to use money loaned or given by a relative to help you purchase a property.
With property prices on the increase again and the effects of the credit crunch and austerity measures still being felt by many, it has become even harder for a lot of buyers to take that first step onto the property ladder or to move on as their family grows. They struggle to find the 20% deposit or more that lenders typically require for their best mortgage deals. As a result, some parents are offering a financial helping hand to their children to assist them with the purchase of their home.
From the parents’ perspective this can be an investment for their own future as well. With interest rates extremely low at present, investing in property may be an attractive proposition for their future retirement. They need to balance their desire to provide financial support to their children with their own future financial needs and consider the alternatives available to merely handing over a cash sum to their children. If financial assistance is being provided to a child and their partner, thought also needs to be given to protecting the monies so that, in the event of the parties splitting up, the monies can be returned to the parents and not merely divided between the child and their ex-partner.
From the buyers’ point of view, funding from parents or any other third party has to be notified to any mortgage provider and should be disclosed when submitting the mortgage application. If the money is a loan, it could affect the buyer’s affordability and impact on the amount they can borrow. If it is an outright gift, or no regular repayments are required, and the parents are willing to confirm that to the lender, then generally it shouldn’t affect the amount they can borrow from one of the High Street lending institutions.
Both parties should bear in mind that they should each take their own legal advice and the same solicitor cannot act both for the persons providing the money and the persons receiving it because of possible conflicting interests.
At The Wilkes Partnership Solicitors we can offer advice and assistance and explain the different options available to anyone thinking about buying a property with financial help from parents or other relatives, and to any parents or other persons fortunate enough to be able to offer such financial assistance.
If you would like to discuss any of the above points raised please contact Joanne Seeney on 0121 733 8000 or via email at [email protected]