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Many first time buyers rely on parental contributions to help them onto the property ladder. Also known as ‘Bank of Mum and Dad’

Many first time buyers have help from Bank of Mum and Dad when buying their first home.

You will need to consider the following when contributing towards the deposit

If you have decided to help your child by contributing towards the deposit for their new house you should consider whether;

1.The money will be a gift which you will give to them on an unconditional, non-refundable basis?

2.Do you expect to have the money returned to you eventually and if so when?

If the money is to be a gift, you would have no control over what happens to the property because you would have no interest in the property. This means your child could sell, remortgage or share the ownership of the property with a second person and the possible result would be the gifted money would have to be shared in the future by the child with a co-owner when the property was sold.

If you decided to gift the money and were aware that your child was going to purchase the property with another person from the outset, your child should arrange to enter into a Trust Deed with the co-owner.

A trust deed would set out the amount of the value in the property which each co-owner would be entitled to when the property is sold after the repayment of the mortgage. So if you contributed 10% of the purchase price at the beginning, the initial 10% of the sale value would be paid to you after the repayment of any mortgage on the property from the net proceeds of sale.

The Trust Deed would also set out how the remainder of the net proceeds of sale would then be divided between the co-owners and this can reflect the contributions which each owner is intending to make to the mortgage and running costs during ownership of the property.

However, this does not guarantee the full return of the initial deposit money to your child because the value of the property may drop or the amount needed to repay the mortgage and pay the selling costs may mean that the net proceeds of sale do not amount to 10% of the selling price.

If the property sells for more than the original purchase price then your child would benefit from the increase in value of the initial investment.

The Trust Deed can therefore “ring fence” any initial contribution (in percentage terms) made to the purchase of the property for the benefit of your child, and can set out the agreement at the outset between the co-owners. Once the Trust Deed has been entered into between the co-owners, it cannot be changed unless the changes are mutually agreed between them by deed.

You should consider any tax implications or any need to reconsider Estate planning which you may have already put in place in the light of a gift or a loan to your child, and take your solicitor’s advice on the implications.

For example, if you have more than one child you may wish to adjust your Will if you decide to gift money to one of your children in advance of your death, but had intended to give your Estate to your children equally.

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