My daughter now tells me that the lender, her bank, is questioning the authenticity of the loan and have told her they are within their right to refuse the mortgage.
Surely every parent wants to gift their child money for their first home purchase – why is this being refused?
An important rule that often surprises families is this: in order to be accepted by a lender, your gift must be a 100% genuine gift.
While you have good intentions in giving this money to your daughter, the fact that you’ve added conditions to the gift – i.e. she must return the funds if she sells her house and doesn’t purchase another – the lender may view this as a loan.
What your daughter’s bank is saying in this case is that it needs assurance the person giving the money, or the “donor”, does not expect repayment, will not charge interest or have any legal claim on the property. The bank – or any other lender for that matter – also needs to know that no one else has a claim over the home or the buyer’s finances. Therefore, most mainstream lenders will not permit this and may well decide to refuse the offer of a mortgage, as you have discovered.
So, when is a gift not a gift? When it’s a loan – and that is how the bank will view this.
Gifting cash like this will also need to be considered as part of your own estate planning. You need to take independent financial and legal advice, so you understand the options available and the implications. If you make a loan, then this will be repaid to your estate. There is no Inheritance Tax (IHT) saving in these circumstances. If you make a gift your daughter could be left paying IHT if you pass away within 7 years of giving that gift, as again as it will still form part of your estate. You can avoid these complications by ensuring your Will includes the relevant provisions.
It’s really important you seek legal advice on this as there are all kinds of nuances like this which can catch people off guard. What is right for your friend or relative or someone you have read about, may be disastrous for our family. Relying on AI is a dangerous option as you don’t know what you don’t know and neither does AI.
For further help and advice, contact Downs Solicitors to see how we can help.
Contact Liz Dalgetty
