As a proportion of income the cost of buying your own home has never been higher. The availability of mortgage funds has never been more strictly controlled with criteria more detailed than ever before. For many, the prospect of saving a full deposit and being able to borrow the balance from an institutional lender is bleak. For the lucky few, the financial success of the Baby-boomers has meant that help from the family (The Bank of Mum and Dad or “TBMD”) has increasingly filled the gap and made many house purchases possible. Where a couple buy their home together, the conveyancer has always asked them how they will contribute to the purchase cost and whether they will contribute equally or not. They have been encouraged to consider whether they should hold the property as joint tenants or tenants in common and what arrangements can be made to safeguard their respective contributions fairly in the event that they decide they cannot live together and the property has to be sold. Declarations of Trust and Restrictions registered against the title to the property at Land Registry have been common tools used to provide the required solutions. The contribution from TBMD presents the conveyancer and the clients with extra challenges because of the separate interests and concerns of the providers of the additional money.
The first is that the clients are the buyers –NOT the individuals making the funds available. They should obtain separate, independent advice. This is so even though the conveyancer will have detailed requirements of them in respect of the source of their funds and proof of identity. Mum and Dad may want to make their gift to one of the buyers only and insist that their contribution is not to be shared by both if that relationship fails and the property has to be sold. Whilst a Declaration of Trust may still provide a solution, it is the buyers who make the declaration and they must instruct the conveyancer on this point.
Then the Lender must be told about the additional financial help the buyers will receive. Full disclosure should have been made when the mortgage application was submitted but the Lender also relies on the advice it receives from the conveyancer as to the true facts. Is the contribution a pure gift or a loan? If the second, what are the terms of the loan? The Lender will have strict rules about what security TBMD can be given and the conveyancer can only advise the buyers what steps can be taken in light of the facts and particular Lender requirements in their own case. Although the family may decide that little or no formal arrangements or safeguards should be put in place, the Lender’s interest in the true facts cannot be ignored. Obtaining instructions from the Lender about how the matter can proceed may cause some delay and the buyers must give their conveyancer full instructions as soon as possible to help avoid that delay coming at a critical time when the purchase might otherwise proceed.
by Richard Harris, property solicitor with Holmes & Hills