Gifting your child a house deposit.

amistupid

I am considering helping my stepdaughter, a first time buyer, to purchase a house by gifting her a deposit.

To protect this gift, I'd like to have a deed of trust stating that if the house were sold, after repaying the lender and legal fees, I'd have my deposit returned.

I'm receiving conflicting advice as to whether this is possible.

A conveyancer informs me that lenders would not accept the deposit with such a deed of trust. They state that gifts should have no strings attached, and that the deed of trust would show I had a financial interest in the property.

However, on this link http://www.mu-mortgages.com/parents-help-their-children-to-obtain-a-mortgage/ it states

Generally, lenders do not mind if a parent provides the deposit that is as long as it is not in the form of a parental loan which has a specific date on which it is to be repaid. Therefore the parent may be required to provide a letter confirming that the deposit has been given as a gift.
If parents choose the make the deposit in the form of a gift they are able to do so in any amount and tax free, but they should also take inheritance tax advice.
Many other parents choose to help their children with the provision of an interest free loan for the deposit amount. If this is the case then it is always a good idea to set down a repayment schedule from the start.
It is worth also noting that if parents are not keen in either of the other options they can reflect their contribution in the form of a ‘declaration of trust’ or ‘deed of trust’. This is a private legal document which is separate from but also runs alongside the property deeds and usually states that they will receive their loan amount back on the sale of the property.

Which is right?

AnotherJoe

A conveyancer informs me that lenders would not accept the deposit with such a deed of trust. They state that gifts should have no strings attached, and that the deed of trust would show I had a financial interest in the property.

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That's rubbish because I have exactly such a setup. I gifted the deposit with a signed agreement that should the house ever be sold I have the right to get back a percentage of the sale in proportion to the ratio of the deposit to the house cost. Eg if I loaned 10% I'd get back 10% of the sale price. Obviously you can have the agreement say whatever you want within reason.
I did have to sign an agreement that I would not live in the house.
There is also a second charge or whatever it's called on the land registry so that my daughter can't sell it without my knowledge and do a runner with the money.
The mortgage is with Santander.

amistupid

That sounds perfect.

Did her conveyancer/solicitor draw up the deed of trust?

getmore4less

If the deed of trust says you get your money back it is not a gift but an interest free loan and will reflect as such for other purposes such as IHT.


For a true gift

The deed of trust should be between the true co purchasers.

You gift to your "party" and they are on the deed as having the money protected not you.


Also using the you(they) get your money back is basicaly an interest free loan, a more equitable way is to use equity shares but that introduces complications for the trust deed such as what % of maintenances and improvements should the co-owner(even a silent one) contribute.

getmore4less

AnotherJoe wrote: »

A conveyancer informs me that lenders would not accept the deposit with such a deed of trust. They state that gifts should have no strings attached, and that the deed of trust would show I had a financial interest in the property.

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That's rubbish because I have exactly such a setup. I gifted the deposit with a signed agreement that should the house ever be sold I have the right to get back a percentage of the sale in proportion to the ratio of the deposit to the house cost. Eg if I loaned 10% I'd get back 10% of the sale price. Obviously you can have the agreement say whatever you want within reason.
I did have to sign an agreement that I would not live in the house.
There is also a second charge or whatever it's called on the land registry so that my daughter can't sell it without my knowledge and do a runner with the money.
The mortgage is with Santander.

That is not a gift it is a loan.

AnotherJoe

amistupid wrote: »

That sounds perfect.

Did her conveyancer/solicitor draw up the deed of trust?

No, my solicitor did. Whether it's actually called "a deed of trust" I couldn't tell you, it's an agreement between us,

And to answer another question, my will also reflects this loan (not sure if thats right technical term but fair enough it's also not a gift since therevarevstrings attached) since there are other siblings so the will ensures this deposit is taken into account when splitting the estate.

I wouldn't get too hung up on where it's gift, a loan or something else, the thing is, what the OP wishes is very possible,

getmore4less

It is important to be clear what it is you want to do gift or loan as that will determine which options are available and importantly which lenders.


There are other ways to help/protect using specificaly designed products like Barclays springboard(others are available).

AnotherJoe

p.s. OK I've just looked at the document we signed and its entitled "loan agreement".

amistupid

AnotherJoe wrote: »

p.s. OK I've just looked at the document we signed and its entitled "loan agreement".

I've just been onto a solicitor and a mortgage adviser. Apparently there a very few lenders prepared to accept a a deposit which involves a loan agreement. The adviser is searching any lenders that will. I informed him that Santander accepted yours.

AnotherJoe

In case it helps, ours was done in October 2014. Hopefully they haven't changed position since then. My daughter went through a broker who was outstanding and steered us through all this.

Note that the agreement is that there are no repayments being made and no schedule or date by which the money needs be repaid other than sale of the house.