Rising interest in the bank of mum and dad

With property prices in the south west remaining high in relation to salaries and more attractive mortgage deals only being available to those with a bigger deposit, many buyers are relying on “the Bank of Mum and Dad” to enable them to get a foot on the housing ladder. According to a recent article in The Telegraph, two-thirds of first-time buyers rely on their families.

Outright gifts

For parents, grandparents or other family members who are in the fortunate position of being able to make an absolute gift of funds (on average £17,000.00 according to research) there are no legal issues other than ensuring that the mortgage lender is aware what funds are being gifted. You should ensure that your mortgage broker and conveyancing lawyer are aware of the situation from the start.

How to protect the loan

Where a family member is using their own savings or has raided their own pension and is seeking to protect their hard earned cash the situation is different. Mainstream mortgage lenders are reluctant to agree to anything which may adversely affect their position and few lenders are likely to agree to a family member having a second charge (mortgage) over the property as security, even though it would not affect the first lender’s ability to repossess the property in the event of the mortgage payments not being made.

If the mainstream lender is not prepared to allow a second charge there are still ways of protecting the family member’s investment. Most popular would be a Declaration of Trust setting out the various parties’ input and who is entitled to what in the event of the property being sold. These are equally useful where two or more people are buying a property together but contributing different amounts or where they will be making different payments towards the mortgage and running costs in the future.

Alternatively a Promissory Note providing a simple legal promise to repay the loan at a future date may be appropriate.

It is essential to take good legal advice at an early stage in the process and our legal advisors are there to support and protect you throughout the process.

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