The Bank of Mum & Dad, (and Nan and Grandad)……How do Gifted Deposits Work in Practice?
Due to the continuing increase in property prices many people – generally First Time Buyers - are now reliant on help from the ‘Bank of Mum and Dad’ or another family member to help them get on the property ladder.
Here Iain Gardner, a Residential Property Executive in our Morley branch, looks at what you need to know in advance if you benefit from such support, the pitfalls that may arise, and how to avoid them.
What is a ‘Gifted Deposit’?
If you are receiving a sum of money without any obligation to pay it back, this is classed as a gifted deposit.
It means that the person giving you the money will not have an interest in the property- they will have no legal claim to it. They will also have no way of recovering the money once the purchase has gone through.
If you will have to repay the money back at any stage, it is not a gifted deposit and is regarded in the same way as a loan. Your conveyancer will advise you as to the implications of this.
Do I need to advise my mortgage lender?
In short, yes. You should advise both your lender and your conveyancer at the outset- don’t leave it until the last minute. If you do, the delay in receiving a decision from your lender can hold up the transaction. At worst, the lender can withdraw the mortgage offer. This is because each bank or building society has their own lending criteria in deciding whether to offer some one a mortgage. A repayable loan – even to a family member – affects your “affordability level” (that is, how much money they think you can afford to borrow and pay back each month).
You should also bear in mind that your conveyancer has an obligation to inform your mortgage lender about the deposit if you haven’t done so. If a conveyancer is asked not to disclose this information, they will follow that request, but it also creates a conflict of interest and they will be unable to continue acting in the transaction. This is because the conveyancer is generally acting for both the buyer and for the bank and has a duty to act in the best interests of both.
Is there any paperwork to fill in?
Your conveyancer will require the person(s) gifting the money to complete and sign a declaration- this is a brief document that meets the legal formalities.
In some situations your mortgage lender will ask for an additional form to be completed, but again this will be very straightforward.
Do I need to show proof of the funds?
Your conveyancer will need to see evidence of where the money is coming from (a bank statement is sufficient) due to requirements under Money Laundering Regulations.
Gifted deposits are now a common part of the conveyancing process. You can ensure a smooth transaction as long as you work openly with your conveyancer and mortgage lender.
Our conveyancers have considerable experience in dealing with gifted deposits and can provide all the assistance you need. Please contact us on 0113 284 5000 to find out more.
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