Can my parents loan me a deposit as a First Time Buyer?
Help from parents is incredibly common in the current market but most lenders require these funds to be gifted, not loaned. If your parents are ‘gifting’ you money, the lender will require your parents to complete a form/letter to say that they have no financial interest in the property and don’t expect the money to be paid back. Understandably, some parents aren’t comfortable with this, especially as the money is often not just gifted to their child it will be for that child’s partner or friend too. There are some options to protect your parent’s money. Your parents can ‘loan’ you the money in one of two ways.
- They can loan you the funds and put a charge on the property for this amount. This means that should the property be sold or repossessed, your parents would have a right over their portion. For example, if the bank repossesses your home and sells it, they would reclaim their mortgage funds and then your parents would be able to reclaim their funds from any surplus left.
- They can loan you the funds and would expect monthly repayments for this. There is a small portion of the market that would allow this scenario but it is important to note that the monthly repayments will reduce the amount you can borrow the same way a personal loan would reduce the amount you could borrow.
Parental loans aren’t as common in the market and therefore your options are further and fewer between. It is possible to arrange this scenario though and on some competitive rates too.
Mortgage for a First Time Buyer
We were approached by a young couple, Joe and Louise, looking to purchase their first home. They had been let down by the banks they held current accounts with due to the source of their deposit and were in need of some help.
Their deposit was coming from a combination of Help to Buy ISAs, personal savings and money from Louise’s parents. Louise’s parents weren’t comfortable signing away their right to the money altogether with a ‘gift letter’ but also didn’t want monthly repayments from Joe and Louise. They were wondering ‘how can we protect the money we’re giving to our child for a deposit?’
We found Joe and Louise a competitive mortgage rate (1.41% fixed for 2 years) with a large bank that we’re happy for Louise’s parents to put a charge on the money they were lending as a deposit. This way Louise’s parents had security and peace of mind that they still had a claim to their funds if needed but no repayments had to be made.
In the future, when Joe and Louise look to remortgage their property for a better deal, we will explore the option of capital raising enough to pay back Louise’s parents and removing their charge.
We’d be happy to discuss these types of deposits and your mortgage options to see if you’re eligible, do give us a call on 01174 520 330. Our initial conversations usually last around 15 minutes.
Alternatively, you can email firstname.lastname@example.org and let us know how we can help you.
We will discuss:
- How much you can borrow
- What that will cost
- What fees can you expect
- How Lloyd Wells Mortgages work
- What insurances you will need
- What documentation you will need to provide
- Next steps
Your home may be repossessed if you do not keep up repayments on your mortgage