In spite of the various government initiatives to help first time buyers get onto the property ladder, an increasing number of buyers are being assisted by their families by way of a gift of cash to help with the deposit for their new homes.
If you are lucky enough to be receiving a cash gift from a family member to purchase a property, you should take the following steps to ensure all parties are protected:
Tell your solicitor as soon as possible after you have instructed them. They will need to carry out legal checks against the person gifting you the money, including establishing the source of funds in order to comply with anti-money laundering rules – this has to be done in every case.
Tell your mortgage advisor from the outset that you are buying a property with the help of a gift. Your mortgage advisor will then inform the lender.
Provide details of the person giving the money to your solicitor, who will issue the relevant paperwork to the person providing the money, asking them for written confirmation as to whether the money is a gift or a loan.
It is advisable that the person providing the money seeks independent legal advice to ensure that they are fully aware of the implications of giving the money to a third party, rather than providing a loan.
Some givers will attempt to transfer the funds into the buyer’s before any transaction has begun in order to avoid these formalities. This will most likely come to light during the conveyancing process, as the buyer will be required to provide evidence as to where their money originated from. Alternatively, it can constitute mortgage fraud by the buyer, as they must give a declaration to the lender that they have provided all the deposit funds themselves, unless notified to the lender otherwise.
If the money is a gift, the giver will need to provide a letter stating they will have no interest in the property and do not intend to have one, even though they are providing money towards its purchase. This helps protects the mortgage lender against any potential future challenge over the ownership of the property in the event of repossession.
If the money is to be a loan or the giver expects to receive an interest in the property, your solicitor will need to report this to the mortgage lender. In such circumstances, the lender is likely to refuse to complete the mortgage.
In addition, the buyer’s solicitor will need to verify the giver’s identity and bank statements, or other evidence to show where the funds have come from. If they are from savings accrued over some time, they will need to provide bank statements going back some time to prove this.
Whilst these requirements can seem obtrusive, failure to observe them can have serious legal consequences and therefore must not be ignored. Following these steps from the outset of a transaction can help avoid unwelcome delays at a later date.
If you are looking for legal assistance regarding house deposits from family members, or for buying or selling your house, Farleys’ property team can help. Call us on 0845 287 0939 or email the team.