Purchasing a Home with Help from the Bank of Mum and Dad

Initially, the purchaser should consider their financial position and work out how much they can afford to contribute towards the deposit (generally at least 10% of the purchase price), as well as any ancillary costs, such as stamp duty, solicitor's and surveyor's fees, moving and refurbishment costs.

Generally, the amount loaned by the parents covers some or all of the purchase price, therefore eliminating the borrower's need to secure a mortgage. The loan may also include an amount to cover some or all of the stamp duty payable on the purchase of the property, professional fees and possibly refurbishment costs.

Once the loan terms are agreed upon, both the borrower and the lender should seek independent legal advice to ensure everything is appropriately documented in a formal loan agreement.

In addition to legal advice, it is also recommended that the parties seek advice from a tax adviser.

A tax adviser can advise on whether a Bank of Mum and Dad loan is appropriate to the circumstances of the parties, as well as the potential tax implications of the loan.

They may also provide advice on alternative options to a Bank of Mum and Dad loan in the context of wider estate planning.

Loans secured against residential property may be subject to the Financial Services and Markets Act 2000 if they meet certain criteria.

Carrying on a regulated activity without authorisation from the Financial Conduct Authority (or without a valid exemption) may be a criminal offence.

As such, legal advice should always be sought before securing a loan against residential property. A one-off mortgage securing a loan to children (or other family members or friends) may not be regulated.

However, the circumstances of each loan arrangement will need to be assessed on a case-by-case basis, including the terms of the loan, the relationship of the parties, and the circumstances of the lender. Our Banking Team are able to provide advice on this issue.