Fairy godmother will pay my deposit

How to ensure things are set up properly when someone else pays the deposit for your property.
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Image: Merrily Harpur

Question: I am saving to buy a flat and my godmother has said she will let me have a deposit of 10 per cent of the price of whatever I want to buy. It's a fantastic opportunity and I would like to take her up on it, but I want to make sure that it's all done properly — any advice? 

Answer: You need to establish if your godmother intends to make a gift of the money to you or whether it is to be a loan, or if she is expecting to have a share in the flat in return for the 10 per cent.

Whatever the case, you need to disclose the arrangement to your mortgage lender.

Tell the lawyer who conducts the purchase for you that your godmother is providing the deposit. It would be easiest if she puts the money in your account and you then transfer it to your lawyer's client account. If she pays the money directly to the lawyer, he or she will be required to follow anti-money laundering rules, which will involve certifying her identity. If the deposit is to be a loan, your godmother may wish to take a second charge over your new flat. Discuss this with your lawyer as many mortgage lenders would not find that acceptable.

If she makes it an outright gift, with no interest in the property, then make sure she signs a deed of gift. This official legal document may be used for transferring money or other property, without payment in return.

Another way to safeguard the deposit is for there to be a declaration of trust between you and your godmother. This would protect her 10 per cent share in your property and would need to cover such matters as whether interest is to be payable on the loan, when it is to be repaid, whether it is a fixed sum she will get back or a share in your property, etc. Take advice from your lawyer regarding setting this up.

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If you have a question for Fiona McNulty, email legalsolutions@standard.co.uk. We regret that questions cannot be answered individually.

These answers can only be a very brief commentary on the issues raised and should not be relied on as legal advice. No liability is accepted for such reliance. If you have similar issues, you should obtain advice from a solicitor.

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