Gifted deposits needn’t leave lenders in a bind

We have a range of products designed to protect lenders should a transfer at undervalue or gift ever be set aside due to claims under the Insolvency Act.

In recent years we’ve seen an increasing number of buyers relying on gifted deposits from family – known as the ‘bank of Mum and Dad’ – to help them get a foot on the property ladder. As unusual as 2020 has been, this trend has remained consistent.

According to a report by Legal and General, bank of Mum and Dad lending is currently down to half the level it was in 2019, reflecting the impact of the lockdown on the broader housing market. However, around 1 in 4 transactions in 2020 have involved a gifted deposit, up from 1 in 5 the year before, and nearly a quarter of homebuyers report that they have been more reliant on help from family and friends as a result of the pandemic. First-time buyers in particular face affordability issues: driven in part by the stamp duty holiday, house prices have risen dramatically over the last year, with some banks estimating that the average home now costs over £250,000. This shows no signs of changing: reports suggest a third of those likely to buy a home in the next five years will use gifted deposits, making the bank of Mum and Dad a vital factor in recovery of the housing market post-COVID-19.

Our stand-alone ‘Parental Help to Buy’ cover was developed specifically to assist in transactions like these. The policy offers protection to mortgage lenders should a parent or other family member provide a deposit, only to be declared bankrupt within the timeframe set out by the Insolvency Act, and the transfer or gift is set aside to help settle their debt.

And this is just one of many scenarios for which we can provide cover in relation to the Insolvency Act. Others include where there is a transfer of equity from sole to joint names when a couple marries, or vice versa in the event of a divorce; a landlord who might wish to transfer property to their limited company for tax reasons; or a property that may be sold lower than its market value as a gift. We can even extend cover to third-party buyers who have subsequently bought a property at full price, clearly innocent of any involvement in the initial transaction.

To find out more, visit our products page on ICON, or call 01603 761515 or email to speak to one of our underwriters.


Sources: (Legal & General – August 2020

(BBC News – November 2020