How you may finance your purchase……Bank of Mum and Dad

Although purchasing a new build gets you onto the Property ladder, you must be aware of the costs involved in doing so. These costs do not just include your monthly mortgage payments, they include the upfront cost of purchasing the Property. These costs include reservation fees, stamp duty, mortgage arrangement fees, surveyor fees, additional extras you would like included in the Property (if buying a new build) and of course your deposit. The deposit is the largest sum of money you will be putting into the purchase and the amount will differ from person to person depending on their circumstances. You may have the full deposit but there are others who do not…what are their options?

The most common option we have seen is that purchasers’ parents gift their children with the deposit to allow them to get onto the property ladder. It is important to note that a gift does not only have to be made by parents. It can be made by other family members such as grandparents or siblings. We have seen a great increase in gifts being provided over the last few years, and in particular with first time buyers. Although this is a very informal agreement it is important for both parties to understand what the gift means to them and the implications of the same.

The following are some pointers to assist:

1. Inform your solicitor as soon as you can that a gift is being provided in the transaction. Your solicitor will have requirements which can include requesting ID (certified by a legal professional) of the giftor (person providing the gift), evidence of the funds being available (usually bank statements or other statement showing the availability of the funds) and evidence showing the funds are a gift and not a loan;

2. Your solicitor will still be required to undertake the necessary anti-money laundering checks on the funds making up the gift and it is therefore important to understand that any enquiries made by them is not intended to be intrusive and co-operating will only help to move matters along;

3. Your solicitor will be obliged to report the gift to your lender/mortgage provider. They would require confirmation of the amount of the gift and the relationship between you and the giftor. Although the lender is initially informed of the gift when making the application, your solicitor cannot proceed with the transaction until the lender/mortgage provide has confirmed they are happy to proceed;

4. The evidence proving the funds are a gift and not a loan usually comes in the form of a letter from the giftor. The letter would usually include confirmation of the amount being gifted, the fact that the giftor does not expect the funds to be repaid, will have not interest in the Property and will not be living at the Property. This letter will need to be provided to your Solicitor;

5. It is imperative the giftor understands that once the process has been completed, they no longer have any rights over the money or the Property. There may also be other tax implications on the giftor such as inheritance tax.

If you are looking to buy a new home or just want a chat about the process of buying a new build home process contact Prabjoth or Senay at Meaby & Co for timely advice at pbassan@meaby.co.uk / stalat@meaby.co.uk or call 0207 703 5034.