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Now it's the Bank of Gran and Grandad!!
Property Lawyer Victoria Robinson, of Martin Tolhurst Solicitors in Ashford agrees with the research recently published by Santander mortgages. The research that Santander carried out indicated that it was not only the well known “Bank of Mum and Dad” that were helping the out first time buyers with property purchases but increasingly it was the “Bank of Gran and Grandad” who are helping to fund deposits. Santander’s research showed that one in eight first time buyers were asking their grandparents to help fund deposits for their first house purchase.
Victoria commented “First time buyers need a large deposit to enable them to obtain mortgage finance, and the best mortgage rates that the lenders offer. Often a 20% deposit is required to achieve a reasonable mortgage interest rate. I am acting for around 20 first time buyers a month and typically more than half are being given financial assistance by their parents or grandparents.”
However gifts are not without danger and the need for legal advice where such gifts and financial aid were being made was essential. Victoria continued “Parents and grandparents are looking to help their children and want to ensure that a property purchase is dealt with as quickly and easily as possible. There are further considerations that need to be made by any family member making or receiving a large financial gift towards a house purchase. These include:-
- Inheritance Tax implications. If the person gifting the deposit dies within seven years the amount of the deposit will still be considered as part of their estate for Inheritance Tax purposes.
- If the child or grandchild receiving the gift has financial problems then companies that they owe debt to may seek to take a charge over the equity that effectively the grandparents or parents have given them.
- If the child or grandchild is buying a property with their partner or spouse then in the event relationship breakdown the partner or spouse may seek to claim a share of the gift/equity even though that was not necessarily the intention of the parent or grandparent gifting the money at the outset.
“The issue that everyone has to understand is that the gift has to be an outright gift in order to comply with mortgage lender’s requirements. Where there is such an outright gift then it cannot be subject to a reservation. The parents or grandparents cannot impose conditions on the gift or make it subject to a reservation usually” warned Victoria. “Often we would advise families to discuss such gifts with us as solicitors. We can advise them of the implications of such gifts and whether there is anything they can do to protect themselves against the sorts of situations outlined above to prevent problems in the future. The joint ownership of the property, Trust Deeds and agreements can all be considered depending on the individual circumstances where the gift is made. The Bank of Mum and Dad, or the Bank of Gran and Granddad are increasingly common and exceptionally helpful to first time buyers but the gift should not just be made without thinking of future implications”.
For more information or to arrange to speak to Victoria about this issue, speak to our New Business Team on 01795 416933.