The Rise of the ‘Bank of Mum and Dad’: Understanding Gifted Deposits

Many first-time buyers are increasingly turning to the ‘Bank of Mum and Dad’ to step onto the property ladder. For some, achieving saving for a deposit is an unachievable goal without family assistance, a trend that has become more pronounced in recent years.

Navigating financial support from family can be challenging, particularly with the various rules surrounding gifts and loans. If you’re considering asking your parents for help, it’s crucial to understand these regulations and requirements before proceeding.

Initially, you need to determine if the financial support from your parents will be a gift or a loan, as this must be clearly disclosed in any mortgage application. Gifts are more common because they are exempt from inheritance tax, provided your parents live for another seven years. However, transferring money isn’t as simple as it sounds due to specific legal obligations that your conveyancer must fulfil.

Your parents will need to sign a ‘gift letter’ confirming that the money is a genuine gift, with no expectation of repayment or future interest in the property. Additionally, they must provide proof of identity and the source of the funds. For instance, if the money is from an ISA, bank statements must be shown. If it’s from an inheritance, documentation from the executor or showing the amount received will be required.

These steps are part of the standard anti-money-laundering regulations that all conveyancers must follow, though many people find these requirements intrusive.

If the support is in the form of a loan, a formal agreement outlining the repayment terms is necessary. Loans are less common because mortgage providers are typically wary of additional lenders, which can affect your mortgage eligibility.

Despite the support, buying and owning a home remains a significant commitment. It’s always wise to seek independent financial advice to determine the best option for your circumstances. Consulting with a mortgage broker such as Impact Specialist Finance can provide valuable insights and assistance in navigating the complexities of mortgage financing and ensuring that you make informed decisions regarding your home purchase.