First time buyers are often using gifted money from their mother and/or father to fund the deposit of their first home. It is important to know that any gift provided will need to be verified and banks will often require the giftor (i.e. the mother or father) to sign a declaration confirming that they retain no interest in the gifted deposit and/or the property being purchased.

The reason for this is when someone contributes to money to the purchase of the house there is a potential that they will acquire an interest in the property to the ratio of their financial contribution. This would not be acceptable to mortgage lenders who will want to have full security over the property should they be forced to repossess the property due to a borrowers breach of the mortgage conditions. This will lead mortgage lenders to enquire as to the source of the purchasers deposit/balance monies and if a third party is contributing the bank will want that person or persons to sign a declaration known as a gift waiver.

It is important that parties know the extent of the gift waiver that they are asked to sign. There is no common precedent used by all mortgage lenders. Some gift waivers have the effect of establishing that the gift is absolute and therefore the giftor has no right to claim for repayment. The impact will be that the gift waiver, if signed, will take precedent over any informal agreement reached between the parties. One needs to be sure that what they are signing reflects the agreement between the parties.

Alternatively, a gift waiver can allow the giftor to disclaim any interest in the property in the event that the mortgage lender should have to repossess and sell the property. The result is that the giftor, whilst having no interest in the property, will be a-kin to an unsecured creditor and entitled to seek repayment of the gift in accordance with whatever agreement has been reached between the parties. It should be noted that if this is the intention of the parties that it should be made known to the mortgage lender as such repayment requirements can impact on the purchasers affordability to re-pay the monthly mortgage payments.

The upshot of this increasing bank of mum and dad scanario is that both parties need to make sure that whatever gift waiver they sign reflects the true agreement as reached between parties. Often this will be that the gift is given by the parents absolutely to their child without any intention of being paid back but where that is not the case it is evermore important to make sure the gift waiver is drafted correctly and the mortgage lender is informed appropriately.

With the escalating legal issues surrounding a gift waiver it is not uncommon for lawyers acting for the purchaser to ask the giftor to sign the gift waiver under independent legal advice. Whilst this may add to the purchasing costs it does ensure that all parties are appropriately advised and will minimise any problems in the future.

If you are purchasing and using monies from third party sources (e.g. a gift from your parents) to make up the deposit/balance money needed for your purchase you should let your lawyer know immediately to avoid any delays in the process.

John Fox is an expert in residential conveyancing and if you have any queries on buying or selling property you can contact John on 028 8225 7722 or email This email address is being protected from spambots. You need JavaScript enabled to view it.

Caselaw

Morkot & Ors v Watson & Brown Solicitors & Anor [2014] EWHC 3439 (QB) (24 October 2014)

The Law Society (Solicitors Regulation Authority) v Emeana & Ors [2013] EWHC 2130 (Admin) (18 July 2013)

Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44

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