Bank of Mum and Dad Loans: Purchasing a Property

The rise in property prices put homeownership increasingly out of the reach of many, and prospective home buyers often turn to 'the bank of mum and dad' to take that first step on the ladder. It's advisable to have open discussions and agreements at the outset to avoid conflict, family heartache and expensive legal fees later down the line. So, as a parent, how do you protect your investment?

Are you loaning or gifting money to your children?

Firstly, be clear whether it is a 'loan' or a 'gift'. If it is a loan, what are the conditions for repayment? It is important to bear in mind the consequences of not 'protecting' the loan in the event of, for example, a subsequent divorce. Protection of the loan in the form of a legal charge reduces risk. Keep in mind that when buying with a mortgage, the mortgage lender may be reluctant to offer if the purchase is reliant on another legal charge as well.  

Please bear in mind that both a loan and a gift may have tax implications in respect of inheritance tax and/or stamp duty. A loan will form part of a parent's estate upon death and will, therefore, be subject to tax in the usual way. If the money is a gift, you may want to clarify who the receiver of the gift is: the couple or your child. For example, should the couple separate, and there is enough equity in the house sale to cover the gift, can one party take 100% of that amount or, given that they were given the gift as a couple, should the equity be split 50/50.

Our advice is to talk to your children and make an open and informed decision together in writing. If you feel you need help to put the correct agreements in place and protect your investment, you may require independent legal advice to ensure that your interests do not conflict with your child's. 

Our Conveyancing Team is able to provide clarity and solutions on these issues thanks to our collaborative work with our Family Department and Estates Department - we make sure our advice is not just with a house purchase in mind but involves the whole family. 

For further enquiries, please contact Heidi Vanlangenaeker –

Heidi Vanlangenaeker