My girlfriend and I are looking to buy a flat together in the next few months but our financial situation is a bit unusual.
I’m an entrepreneur and have started several businesses over the years. The last one was not a success and I ended up having to declare bankruptcy 18 months ago.
I’m now back on my feet and newly self-employed, but my girlfriend will be applying for the mortgage on her own.
However, I’m putting the deposit in as my mum has agreed to give me £30,000 towards it.
She lives in Spain, so the money will be coming from there.
We’re not sure whether this arrangement will work? What do we need to do to make sure the lender accepts our application?
It’s not at all unusual for parents to help out by giving children the deposit for a new home
Sarah Davidson, of This is Money, replies: Your situation is definitely not straightforward but then, life isn’t straightforward.
It’s perfectly understandable that you and your girlfriend should want to get on the housing ladder and it’s not at all unusual for parents to help out by giving children the deposit.
The challenges you face come down to a few things.
Firstly the fact that the deposit is coming from abroad, which lenders can sometimes get a bit tetchy about due to strict anti-money laundering rules they must comply with.
Usually, if your mum gives the deposit with written confirmation from a solicitor, they’ll be more accommodating.
It’s also important that this gift is given a minimum of three months ahead of the mortgage application and some lenders like to have seen that the gift was given even longer ago than that.
How the gift is made is also relevant – if this is a loan and your mum expects to be repaid by both you and your girlfriend, it could affect her affordability – effectively reducing the amount she can borrow from the lender.
If it is truly a gift, then this should be clearly outlined in the solicitor’s letter and you will all need to sign it.
Another challenge you have is your previous financial difficulties. Many small business owners go through a few knocks before they find success so again, it’s not actually that unusual.
However, it does make things more difficult as there are fewer lenders that are prepared to consider borrowers in this situation.
There are a few though – smaller building societies and some of the newer challenger banks will look at applications where a borrower has had previous credit problems and is now back on track.
A good mortgage broker will be able to advise you on the best lenders to approach.
The third challenge is that you’re newly self-employed.
Lenders are getting more flexible about lending to borrowers who have recently started their own firms, but typically you’ll need an absolute minimum of one year’s filed accounts and more usually, lenders want to see three years of accounts before they’ll consider you for a mortgage.
This is presumably why you and your girlfriend have decided that she will apply for the mortgage on her own.
Bear in mind however, that a sole applicant relies on one income and therefore the amount she can borrow will be much less than if both of you were to apply.
Whatever you decide to do, I would suggest that you see a solicitor with some experience in this field. They will be able to help you and your mum sort out the legal requirements of the gifted deposit.
They should also be able to draw up a letter confirming the legal ownership of the property once it’s purchased, given that the deposit is yours but the mortgage will be your girlfriend’s responsibility. Y
ou will need to own the property as tenants in common and have a declaration of trust drawn up that shows how the property is to be split in the event of a break-up, for example the first £30,000 goes back to you and the rest is split equally if you have made equal mortgage payments.
Should things not work out between you, having a legal contract in place up front that outlines exactly who owns what and how the property should be divided in the event it is sold and you go your separate ways is a must.
Pispinis: We recommend that you and your girlfriend take separate legal advice
To take you through the details and things to think about, we asked an expert for some tips.
Chrysanthy Pispinis, director of Post Office Money, replies: We cannot advise on whether the lender will accept your mortgage application, as each lender will have its own criteria for approving mortgages, but we have set out some general thoughts for you to consider, relating to the arrangement with your mum and your girlfriend.
Depending on whether your mum is transferring the money to you, or directly to your girlfriend, this may mean the financial arrangement will be solely between your mum and your girlfriend – not you.
You don’t mention whether your bankruptcy has been discharged and this may have an impact on how any money your mum transfers to you is treated.
Your bankruptcy status may affect your girlfriend’s mortgage application; you’ll need to check this, as every provider is different.
You should also bear in mind that, as the mortgage would be in your girlfriend’s name alone, the lender may require the property to be bought in her name alone (you may want this to be the case as your bankruptcy may affect your rights in any property you own).
In this scenario, you’ll need to check whether you will have any legal rights to the property. We recommend that you and your girlfriend take separate legal advice on this issue.
Your mother being based in Spain shouldn’t impact the arrangement, however your mum may want to obtain advice from a financial adviser or her bank before transferring the funds to you (or directly to your girlfriend).
And it would be a good idea for your mum to tell the bank where the money is being paid to, and explain what it is for.
In addition, we’d recommend that your mum, girlfriend and you have a robust conversation as to the exact terms on which your mum is providing the deposit and consider putting a written arrangement in place.
You should also discuss whether the deposit is being provided to you (or directly to your girlfriend) as a gift or a loan, as this will also have an impact on the arrangement that you put in place. It sounds very formal, but documenting the arrangement could save a lot of arguments in future, especially if things don’t go to plan or circumstances change.
Our research shows that it is becoming very common for parents to gift or loan money to their children to help them get on the property ladder; however, what isn’t common is for families to take the right precautions to protect all parties.
Post Office research recently found that 87 per cent of those loaning or gifting money to family members for the purpose of a property purchase made no formal agreement.
If you’re unsure about what to discuss in that conversation, you can use the Post Office Bank of Mum & Dad Conversation Guide as a first step.
And please take independent legal advice in order to create a legally binding agreement.
Lastly, we’d recommend you seek your own independent legal and financial advice, so that you can put an agreement in place which protects all parties’ interests. You, your mum and your girlfriend have different interests, so it makes sense you each get your own advice.