With property prices rising at a much faster rate than wages, it’s becoming increasingly difficult for young people to purchase their own homes without financial help.
Many first time buyers receive money from their parents or grandparents before they can buy. In fact, one study revealed that parents will go to great lengths to help their children get on the property ladder, including lending or gifting money from their savings (44%), downsizing (12%), and even delaying retirement (9%).
If you’re thinking of helping a relative to buy their own home, here are some factors to take into account.
There’s no such thing as a gifted deposit mortgage
Many people assume that if they’re purchasing a home with a gifted deposit, they need a specialist ‘gifted deposit mortgage’. This isn’t the case and, in theory, homebuyers with gifted deposits should be eligible for the same mortgage products as those paying with their own savings.
Some lenders may refuse to lend money to those with a gifted deposit, but this is based on their approach to risk rather than the types of product on offer.
You’ll need to confirm your gift in writing
Most lenders will approve mortgage applications where parents have gifted a deposit, providing the homebuyer passes the lender’s affordability tests.
Usually, parents will need to sign a gifted deposit form before lenders will proceed.
The form will outline exactly how much money is being gifted and will require signatures to confirm that the money does not need to be repaid. You may also have to confirm that you’ll have no rights over the property itself.
Professional legal advice could help you protect your gift in the event of a breakup
If your child is purchasing a property with their partner, problems could arise in the event of a breakup.
As the money is a gift, once you’ve given it to your son or daughter (and their partner), the money is out of your hands. However, if you’d like to ensure that your child’s partner doesn’t walk away with the money you gifted in the event of a separation, seeking professional legal advice before gifting the money could enable you to protect the money. Your child will have to be onboard with this.
Gifted deposits may be liable for inheritance tax
If you pass away after gifting a deposit, your son or daughter may be liable to pay inheritance tax (IHT). Seeking advice from a financial advisor or contacting HMRC will enable you to find out whether IHT would need to be paid.
Whether you’re helping a relative to buy their own home or you’re a first time buyer with help from the ‘Bank of Mum and Dad’, we can help you find the right lender for your financial situation. Get in touch with our team of specialist mortgage brokers to learn more.
