Every year, the Bank of Mum and Dad comes to the rescue by helping thousands of first-time buyers get on the housing ladder. It is estimated that almost half of first-time buyers currently receive financial help from their parents to purchase a property.
But for parents planning to assist their loved ones, or children hoping to get a helping hand, there are a few issues to consider first…
- Before gifting a lump sum, parents should plan their finances carefully to ensure they have enough reserves if their circumstances change later down the line.
- Parents aiming to avoid gift and inheritance (Capital Acquisition) tax should check they understand the intricacies of CAT and what the relevant rules are. You can find a brief overview here.
- Buyers should inform their solicitor and mortgage broker that they’ve had help from the Bank of Mum and Dad. Parents must provide ID and verify where the funds have come from as part of anti-money laundering regulations. The bank may require written confirmation that the money is a gift.
- If loaning funds, set out a clear repayment plan (ambiguity can cause conflict).
- Buyers should inform their lender that some of their deposit comes from a loan. The lender will factor this in when determining mortgage affordability.
Acting as a guarantor
- Another alternative is for parents to act as a guarantor on the mortgage, using savings or their own home as security. However, parents should be aware that if their child gets into financial difficulty, they’ll have to pay the mortgage – or risk losing their own home.
We would advise that you discuss the above with a mortgage broker to see which option would work best for you.
If you would like us to recommend a local broker or would like to buy a home in Waterford, contact us today at Liberty Blue. We’re here to help.