As the Millennial generation find it more and more difficult to buy their first homes it is not surprising that more that 80% of the youngsters are buying houses with help from their parents. If you find yourself in this situation, and you instruct us to act for you in connection with your purchase, it is essential to let us know about the gift as soon as possible in order to avoid any unnecessary delay. In addition, it is also important for your parents to make their intentions clear from the beginning and to confirm whether the money is a gifted deposit or a loan.
What kind of information do we need in order to proceed with the transaction? What kind of obligations does the donor have?
Who is making the gift?
According to the Money Laundering Regulation 2017, not only the purchaser's identity needs to be revealed and checked at the beginning of a conveyancing process, but also the donor's identity especially if they are paying the money directly to us.
One of the greatest challenges for law firms in the UK is compliance with money laundering obligations. Due to very strict money-laundering legislation, all our clients need to provide us with photographic ID and proof of address (i.e. utility bill, bank statement, letter from the local authorities, etc.) which should not be older than three months. The same rules are applicable to third parties who decide to make a gift consisting in a significant amount of money towards the purchase price of a property.
As soon as we have all those details and certified copies of the above documents on the file, we are able to perform an ID check for the purchaser and for the donor.
An important aspect is the fact that the ID check is only valid for two years. Consequently, if you instruct us again in few years' time, you may be required to complete the forms again and to provide us with ID.
Where is the money coming from?
This is not out of curiosity but because we need to make sure that the money does not result from illegal activities.
Accompanied by our initial letters, you will also receive a Source of Funds Form which needs to be completed and returned as soon as possible to enable us to proceed with the transaction. When we receive the Source of Funds Form duly completed, we also expect to receive from you 3 years' bank statements indicating the accumulation of money in your bank account. The sum of money mentioned in the Source of Funds Form has to tally with the information on the bank statements.
Regarding the gift, it is not sufficient for us to see that the money has been transferred from the donor's bank account into the purchaser's. The donor will actually have to follow the same strict procedure as the purchaser, by filling in another Source of Funds Form and providing us with bank statements which show how the money has been accumulated.
Has the lender been fully informed?
If apart from receiving a gift in money from your parents or other family members, you also intend to apply for a mortgage, you will need to fully inform the lender from the outset. If you fail to do this, the mortgage lender will have the right to rescind their offer to you as soon as they find out about the gift.
Even so, some mortgage lenders are not happy to lend money knowing that the borrower has also received a gifted deposit and that is only because the person making the gift can later on turn around and say that the money has in fact been a loan, not a gift.
In the circumstances, the solicitor will require a letter from the donor confirming that the money is a gifted deposit not a loan and that the donor has no rights over the property.
Gift or loan?
The client's relatives, who are third parties in this transaction, will need to be very specific when it comes to defining the nature of their contribution towards the purchase price. If the money represents a gift, they will have no right to claim it back.
However, if the money represents a loan, it can be secured by way of charge against the property. If this situation arises, the third parties who are bringing a financial contribution should seek independent legal advice. They should instruct a different law firm to act for them and to represent their interests.
Before proceeding with the transaction, the mortgage lender will need to confirm that they are happy for a second charge to be registered against the property in favour of the third party.
Once the registration with the HM Land Registry is completed, the clients and the relatives who have lent the money will receive Register of Title. The Register of Title will indicate the names of the purchasers in the Proprietorship Register and the names of the relatives who have secured their financial contribution in the Charges Register.
If you intend to give your children a fresh start in life by contributing towards the purchase price of their new property, do not just transfer the money into their account assuming that you will not need to go through the correct procedure. If we are only provided with a half of information when we are instructed, we have no other choice but to put the matter on hold until we have all the pieces of the puzzle in front of us. This can cause a lot of unnecessary stress for all the parties involved in the transaction.
Whether you're buying, selling, investing, or letting a property our Conveyancing experts are on hand to help guide you through the process. Contact us today on 01603 693500 or email us using 'Make an enquiry' form. Appointments available at our Norwich, North Walsham and Sheringham offices.