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PROPERTY SERVICES<br />
25<br />
Gifted Deposits<br />
According to research by the Council of Mortgage Lenders in 2014, approximately 52% of first time buyers received<br />
financial help when buying a home, either from family or through government schemes such as Help to Buy.<br />
With lenders requiring buyers to have quite<br />
large deposits it can be hard for first time<br />
buyers to raise this without support from<br />
parents or other family members. Naturally most<br />
parents would want to help their youngsters get a foot<br />
on the property ladder and the bank of mum and dad is<br />
a popular way to raise the deposit.<br />
But whilst the money is welcome, gifted deposits<br />
can bring an extra complication to the buying process<br />
as there are several legal issues which arise particularly<br />
when the youngster is also having a mortgage.<br />
One of the key provisions of gifted deposit is that<br />
the money cannot be a loan it must be a true ‘gift’ and<br />
the person providing the money will be asked to sign<br />
a legal declaration to confirm this position. This has<br />
the effect that the family member providing the money<br />
cannot ask for it back, expect repayments nor will<br />
they be able to claim any interest in the property later.<br />
Any mortgage lender involved with the purchase will<br />
usually want to know that the person providing the<br />
gift has taken independent legal advice to ensure they<br />
understand these points and that they have signed a<br />
legal declaration to confirm this position. Any money<br />
being ‘loaned’ should be protected by the person<br />
providing the money taking a second legal charge on the<br />
property which is a different legal process entirely.<br />
A further requirement of a person providing a<br />
gifted deposit will often be that they will be required to<br />
provide evidence of their ID and a copy of their bank<br />
or savings account statement to evidence where the<br />
money has come from (this type of gift comes under the<br />
standard money laundering rules). Mortgage lenders<br />
will have varying rules as to where the money can come<br />
from – some will state that whilst mum and dad or<br />
immediate family members can provide monies, more<br />
distant relatives such as aunts and uncles or people<br />
unrelated may not.<br />
Any buyer planning on having a gifted deposit to<br />
help with the purchase should discuss the following<br />
with their potential lender or mortgage broker at an<br />
early point to ensure the requirements of the lender will<br />
be met,<br />
• ‘who is providing the deposit money’,<br />
• ‘on what basis the money is being provided’, and<br />
• ‘how this gift might impact on the amount<br />
available to borrow’<br />
Whilst it is a great gift for a young buyer to have<br />
all or part of their deposit provided they will need to<br />
be aware that if the person providing the money dies<br />
within 7 years or becomes insolvent within 6 years the<br />
details of the gift may come under careful consideration<br />
– firstly as to whether inheritance tax is payable on the<br />
amount and secondly whether the gift can be clawed<br />
back under the insolvency rules. Insurance is available<br />
for such occurrences for the buyer and the benefits of<br />
this should be discussed with the Conveyancer handling<br />
the purchase.<br />
For further information please contact Okells<br />
Francis Law. Telephone: 01989762009/01594 842242,<br />
Email: office@okells-law.co.uk<br />
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