Bank of Mum and Dad: why a loan from the UK's ninth biggest lender could make it harder to get a mortgage

What legal steps should the Bank of Mum and Dad take when helping with a child's deposit?

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Question: We are thinking of lending our son some money to use as a deposit so he can get a mortgage and buy a house. He gets a decent salary and so will be able to afford the mortgage repayments, but for some reason he has been unable to save any of the deposit himself. If we do this for him, are there any issues that we should be wary of?

Answer: Decide whether you wish to gift or lend the money to your son. If the latter is the case, you need to agree the terms of the loan — such as when it should be repaid, whether you wish to charge interest and if the interest would be paid monthly, or rolled up and collected when the loan is repaid.

Your son will need to disclose to his lender the source of his deposit — that is, the loan or gift from you. Not all lenders are keen to proceed if the deposit is being provided by way of a third-party loan. 

If you have a declaration of trust to protect your interest, that would have to be disclosed to the lender and the lender’s consent obtained.

If your son has a partner who will also be living in the property, it might be wise to arrange a cohabitation agreement. 

You could have an interest in the legal title but then you would have to be a party to the mortgage and there may be tax implications, such as three per cent additional stamp duty if you already own a property. 

There may also be a capital gains tax liability when the property is sold.

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