The phrase “the Bank of Mum and Dad” has come to include any form of financial support, whether it’s a loan or gift from family members, given to an individual or a couple when they are buying a property or acquiring a mortgage. It can support with getting on the property ladder or can enable a couple to purchase a more expensive property, perhaps with additional bedrooms or in a better school catchment area.
According to a Legal & General survey in 2023 (the last year for which data is available):
- more than 50% of under 35s had help with buying their first home.
- gifts from family to enable house purchases exceeded £8 billion.
- over 318,000 house purchases were supported by the Bank of Mum and Dad.
If a couple are in the fortunate position of being able to rely on family / parental support, they would be well advised to consider how it might affect their mortgage offer. This is because some mortgage companies are concerned that if the support is by way of a family loan, that the couple may be overstretching themselves. If it is a gift, then take advice on any potential inheritance tax, but also consider what should happen and how to protect that loan or gift in the event of a relationship breakdown.
It is vitally important that any loan or gift is evidenced in writing, and properly documented. You should consider:
If the contribution is to be a gift, is it a gift to the couple or just to the adult child family member?
should it to be treated as an outright gift?
If the couple later separate or divorce, will there be an argument from “the Bank of Mum and Dad” that the gift should be repaid?
How is that to be dealt with on the sale of any property in the event of a relationship rift?
If the contribution is by way of a loan, ensure it is properly documented, setting out the terms of how the loan is made, who has responsibility for repaying it, the repayment date, and whether any interest will be charged. Again, consider how to deal with the repayment of the loan, if appropriate, on the split or breakdown of the relationship.
All of these points can be covered by either dealing solely with the issue of the gift or loan or incorporating the terms of any loan or gift within a cohabitation agreement or prenup. In summary, legal advice taken early ahead of the loan or gift being made can save a great deal of argument, distress, and legal costs if the relationship does not survive.
