Bank of Mum & Dad: How to help your family members buy a home

We’ve all heard of the phrase ‘Bank of Mum and Dad’, it’s certainly not a new phenomenon. However, the recent stamp duty holiday, which has now been extended until 30th June 2021, has seen a strong spike in the number of older homeowners looking to help family members with their mortgage deposits.

Can you gift money for a house deposit?

Most mortgage lenders are happy to accept that a house deposit will be made up of some form of gift from a family member, or members, but they will require you to confirm some points:

• How much is gifted
• Your relationship to the person giving the gift
• The source of the gift – usually a bank statement of the person gifting the money as part of the bank’s money laundering checks
• A signed declaration they won’t have a financial interest in the property
• Photo identification and proof of address of the person giving the gift

Who can gift a deposit?

Rules tend to vary from lender to lender, so it is best to seek advice from a mortgage broker.

However, parents, grandparents and siblings are usually ok.

A lump-sum gift

Did you know that anyone can make a gift of up to £3,000 per annum to a single individual and this can be carried over for one year? So, if you have a distant relative, family friend or godparent who would like to help then they can make a gift of £3,000 to one person in any one year. If they didn’t gift any money last year, they can carry the £3,000 amount over for one year enabling them to make a gift of £6,000 to one individual.

Do remember that if you are gifted a sum of money above the annual amount of £3,000 allowed and the person making the gift dies with 7 years of making the gift then the money over the £3,000 could form part of their estate and inheritance tax may be payable.

Inheritance Tax is a complicated tax and should you find yourself in this situation, it’s worth seeking legal advice.

Can you loan money for a house deposit?

Perhaps you don’t want to simply hand over your savings or can’t afford to then you could consider a loan. Giving money to help with a house deposit in the form of a loan is viewed in a quite different way as the mortgage lender may consider it to be a financial commitment and factor it in as a repayment. This means the home buyer will have to calculate whether they can afford this as part of their monthly outgoings.

Alternatively, the mortgage lender may accept a declaration that the loan will only be repaid when the property is sold.

How can you help with a home deposit if you don’t have savings?

Not everyone has the ready cash sitting in the bank to give away and may look to other means to release the funds. There are various ways you can do this but always be aware you don’t overstretch your own finances or future needs.

Equity release

While equity release is an option to unlock cash, it is seldom the best way and could prove to be quite expensive. Older people may think about this as a way to pass on money to grandchildren as part of their inheritance planning. It is always best to seek advice with this.

Guarantor mortgage

With a guarantor mortgage, the parent would provide some form of deposit security by means of a cash deposit or a charge over the equity in their own home. These become forfeit if the child defaults on the mortgage. Once the child has made sufficient payments to meet the lender’s standards then the deposit or charge on the home would be released or removed.

Other options

There are further options such as a joint mortgage with your child, a springboard mortgage or even re-mortgaging your own home to release a deposit.

As with all these options, seek proper legal advice.

Over the years, Satchells have built up a strong working relationship with various Independent Financial Advisors and they play an important role in ensuring our customers get the best mortgage advice.
If you would like the benefit of their expertise, please contact your local Satchells office who will be pleased to put you in touch with one of our advisors.