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Need for clarity when using ‘bank of mum and dad’ to buy home

Homebuyers should be as clear as possible about the source of funds when looking to purchase a property, an expert has warned.

The advice comes after the news that British parents and grandparents are assisting children with property purchases to the tune of a reported £5billion per year.

Experts from insurer Legal & General and economics consultancy Cebr, say the phenomenon is so widespread that one in four transactions is estimated to involve such loans or gifts.

Sarah Barnes, head of Residential Property at Napthens solicitors, says her team’s recent experience backs up these figures and warns buyers to be transparent about the source of their funds.

She said: “As there are a lot of matters where parents, grandparents and sometimes even other family members are contributing, we always ask clients to complete a source of funds form which asks them to fully detail this breakdown.

“Being clear about the source of funds can help prevent delays to the transaction, so it’s important to let a mortgage broker or lender know in advance during a mortgage application, being clear whether it is a gift or loan.

“If a gift, the donor should be prepared to sign a declaration for the solicitor’s records confirming this is the case. They should also look to take separate legal advice on the terms and conditions of the loan.

“The ideal situation would be for the terms of the loan to be agreed between the parties before the conveyancing process starts, again to avoid any delays.

“Use of the so-called bank of mum and dad is becoming increasingly common in property transactions, so serious thought should be given at the start of the process to how any loan or gift will be managed.

“Involving a solicitor from an early stage can definitely help speed things up.”