Saving for a deposit can be one of the biggest barriers facing first-time buyers. Rent and everyday living costs can make it difficult to build savings, while mortgage affordability checks may limit how much someone can borrow.
Some buyers ask parents, grandparents or other family members for financial help. This is often referred to as using the “Bank of Mum and Dad”.
Family support is not available or suitable for everyone. The mortgage lender and solicitor must be told how the support is being provided, and everyone involved should understand the financial and legal risks before committing.
This guide focuses on buying a home in England. Different property taxes and first-time buyer rules apply in Wales, Scotland and Northern Ireland.
Guinness Homes is proud to provide award-winning Shared Ownership and private sale homes in areas you want to live.
What is the Bank of Mum and Dad?
The Bank of Mum and Dad is not a real bank. It is an informal term used when parents or other family members help someone buy a home.
Support may include:
- giving money towards a deposit
- providing an interest-free or low-interest family loan
- acting as a guarantor
- using savings or property as security for a family mortgage
- buying a property jointly
- applying through a joint borrower, sole proprietor mortgage
The right option will depend on the buyer’s finances, the support available and the mortgage lender’s requirements.
Any money provided must be declared to the mortgage lender and solicitor. A family loan must not be presented as a gift because the required repayments could affect the lender’s affordability assessment and decision.
Why do some buyers ask their family for help?
First-time buyers may ask for help because they cannot save the deposit they need or borrow enough based on their income.
This could be due to:
- rent and other living costs limiting how much they can save
- mortgage affordability checks restricting how much they can borrow
- income from zero-hours contracts, freelance work or other variable sources
- needing a larger deposit for the home or location they are considering
- wanting to reduce the amount they need to borrow
Lenders do not automatically reject applicants with variable or non-standard income. The evidence required and the way income is assessed will vary between mortgage providers.
Family support may help with a deposit or reduce the amount the buyer needs to borrow. The buyer will still need to pass the lender’s checks and show that the mortgage and other homeownership costs are affordable.
How can family members help?
There are several ways to provide support. Each option comes with different responsibilities and risks.
Gifted deposit
A gifted deposit is money given without any expectation that it will be repaid. It can cover some or all of the deposit required for a home.
A larger deposit reduces the amount the buyer needs to borrow. It may also give them access to a wider choice of mortgage products, some of which may offer more competitive rates. The products available will depend on the lender, the buyer’s finances and the size of the deposit.
The lender or solicitor may ask for a gifted deposit letter confirming some or all of the following:
- who is providing the money
- how much they are giving
- their relationship to the buyer
- that the money is a gift rather than a loan
- that they do not expect the money to be repaid
- that they will not receive a legal or financial interest in the property as a result of the gift
The lender and solicitor may also require identification, bank statements and evidence showing where the money came from.
Family loan
Instead of giving money, a family member may lend it to the buyer.
The agreement should record:
- the amount being lent and whether interest applies
- the repayment amount and timetable
- what happens if a payment is missed
- what happens if the property is sold
- whether the family member will have any legal interest or security over the property
The loan must be declared to the mortgage provider. The lender is likely to consider the repayments during its affordability assessment, which could reduce how much the buyer can borrow.
A solicitor can advise on how to record the agreement and whether the family member requires formal security over the property.
Guarantor arrangement
A guarantor agrees to meet the borrower’s mortgage commitments if the borrower cannot pay.
Depending on the mortgage product, the lender may require the guarantor to provide savings as security or may secure part of the borrowing against the guarantor’s home.
A guarantor may have to make payments if the buyer cannot keep up with the mortgage. Savings or property provided as security could also be at risk.
The buyer and guarantor need to understand what the lender can require, how long the guarantee will last and when the guarantor may be released from it.
Family or offset mortgage
Some lenders offer family-assisted mortgage products. These may allow a family member to place savings in a linked account or use savings or property as security.
The buyer remains responsible for the mortgage, while the family member’s assets provide extra security to the lender.
This arrangement could allow someone to help without giving their savings away permanently. Their money may still be tied up for a set period, and some or all of it could be at risk if the buyer does not meet the mortgage terms.
Families should check:
- when savings will be released
- whether savings will earn interest
- whether withdrawals are allowed
- what happens if a mortgage payment is missed
- whether the arrangement affects the family member’s ability to borrow
Terms vary between lenders and mortgage products.
Joint ownership
A buyer and one or more family members may be able to purchase a property jointly, subject to the lender’s requirements.
Everyone named as an owner may have legal rights over the property and responsibility for the mortgage. A legal agreement should cover:
- each person’s ownership share and deposit contribution
- responsibility for the mortgage, bills and other costs
- whether the family member will live in the property
- what happens if an owner wants to sell
- what happens following death, loss of mental capacity or a change in the property’s value
Buying jointly could affect Stamp Duty Land Tax, first-time buyer relief and estate planning.
Joint borrower, sole proprietor mortgage
A joint borrower, sole proprietor mortgage is different from joint ownership.
A family member joins the mortgage application so their income can be considered, but only the buyer owns the property.
Everyone named as a borrower is normally responsible for the mortgage. This could mean the lender can pursue either borrower for the full amount owed, even though only one person legally owns the home.
The mortgage could also affect the family member’s ability to borrow in the future. Not all lenders offer these products, and their conditions vary.
Depending on the arrangement, the buyer and family member may need separate legal advice because their financial interests could differ. The lender and conveyancer should confirm what is required.
What are the possible benefits?
Family support may help to:
- provide some or all of the required deposit
- reduce the amount the buyer needs to borrow
- give the buyer access to a wider choice of suitable mortgage products
- help the buyer consider homes or locations that would otherwise be outside their budget
A larger deposit may reduce the loan-to-value ratio. This is the amount borrowed compared with the value of the property.
A lower loan-to-value ratio may provide access to more competitive mortgage products, but it does not guarantee a lower interest rate or mortgage approval.
Family members may also value being able to support someone during their lifetime. Any help must remain affordable and should not reduce money they may need for housing, retirement, emergencies or care.
What are the risks?
Financial risks
- Family support could reduce money needed for housing, retirement, emergencies or future care.
- Savings or property used as security could be at risk if the buyer does not meet the mortgage terms.
- A family loan could affect how much the buyer can borrow.
- The buyer may struggle with mortgage payments and other ownership costs if their circumstances change.
Legal and tax risks
- Unclear repayment or ownership terms could lead to a dispute.
- Gifts and joint purchases may have tax consequences.
- Joint ownership could affect first-time buyer relief.
- A family member could be responsible for the mortgage without owning the home.
Relationship risks
- Family members may disagree about repayments or decisions concerning the property.
- Other relatives may feel that family support has not been distributed fairly.
- The family member providing support may expect to influence decisions about the home.
A family member should not put their own housing or financial security at risk to help someone else buy a property.
Buyers must also consider the full cost of owning a home. This can include mortgage payments, council tax, utilities, insurance, repairs, maintenance, service charges and estate charges.
Could a gifted deposit affect Inheritance Tax?
There is usually no immediate Inheritance Tax charge when a family member gives money to another person.
Each person has a £3,000 annual gift exemption. Any unused annual exemption can normally be carried forward for one tax year. Other exemptions may also apply.
A gift not covered by an exemption may be considered when Inheritance Tax is calculated if the person giving it dies within seven years. Whether tax is due will depend on factors including the value of their estate, previous gifts and available exemptions.
Families should keep a record of:
- the date of the gift
- the amount given
- who received it
- the purpose of the payment
- any agreements or related correspondence
Read the current Inheritance Tax rules for gifts or speak to a qualified tax adviser about individual circumstances.
Could buying with a parent affect Stamp Duty?
Stamp Duty Land Tax applies when buying property in England, subject to the relevant thresholds and reliefs.
Everyone buying the property must meet the conditions for the purchase to qualify for First-Time Buyers’ Relief. Buying jointly with a parent who has owned residential property before could prevent the purchase from qualifying.
Higher Stamp Duty Land Tax rates may also apply if the parent will own an additional residential property following the purchase.
The solicitor dealing with the purchase should confirm the likely Stamp Duty Land Tax charge before contracts are exchanged. You can also check the current First-Time Buyers’ Relief guidance.
Different property tax systems and first-time buyer rules apply in Wales, Scotland and Northern Ireland.
What should you agree before accepting family help?
The buyer and the family member providing support should discuss the arrangement before any money changes hands.
- Confirm how the support will work. Agree whether the money is a gift or loan, or whether the family member will have a legal share in the property.
- Check that the support is affordable. The family member should consider their housing, retirement, emergency savings and possible future care costs.
- Tell the lender and solicitor. Both need to know where the deposit came from and whether repayment is expected.
- Put the arrangement in writing. Record any repayment terms, ownership rights and what will happen if circumstances change.
- Discuss future events. Consider what would happen if the buyer sold the home, separated from a partner, lost their income or could no longer make payments.
- Check whether separate advice is needed. The buyer and family member may need separate legal advice because their interests could differ.
- Check the tax position. A qualified adviser can explain any Stamp Duty Land Tax, Inheritance Tax or estate-planning consequences.
Written agreements cannot prevent every disagreement, but they can make everyone’s intentions and responsibilities clearer.
Is family support right for you?
Before proceeding, consider:
- Can the buyer afford the mortgage and all associated housing costs?
- Can the family member provide support without affecting money needed for housing, retirement, emergencies or care?
- Is everyone comfortable with the agreement and any family involvement?
- Have the lender and solicitor been informed and the terms recorded in writing?
If the answer to any of these questions is no, it may be better to reconsider the arrangement or allow more time to save.
The decision should be based on the buyer’s finances and housing needs rather than predictions about property prices or mortgage rates.
What if family help is not available?
Family support is not an option for every buyer. There may be other ways to work towards buying a home.
Lifetime ISA
Eligible savers can pay up to £4,000 into a Lifetime ISA each tax year and receive a 25% government bonus, subject to the current scheme rules.
Age limits, first-home conditions, a property-price limit, withdrawal charges and other requirements apply. Check the current Lifetime ISA guidance before opening or using an account.
Buying with another person
Combining deposits and incomes may increase buying power. Each buyer should take legal advice and agree:
- their ownership shares
- responsibility for the mortgage and other costs
- what happens if either person wants to sell
- how any increase or reduction in value will be divided
Considering other locations
Looking across a broader area may uncover homes that better match the buyer’s budget, housing needs and travel requirements.
Continuing to save
More time may allow a buyer to increase their deposit, review their finances or improve the range of mortgage products available to them.
Shared Ownership may also provide another route to buying a home.
Could Shared Ownership help you buy a home?
“We chose a Shared Ownership property as it was the most affordable way to get on the property ladder. It has allowed us to own a home in the right location, all whilst being affordable and manageable.”
George and Laura, Signal Park, Tolworth
If buying a home on the open market is not affordable, Shared Ownership could provide another route.
You buy an initial share of a home and pay rent on the remaining share. As the deposit is usually based on the share you buy rather than the full market value, it may be lower than the deposit needed to buy a similar home outright.
You will usually also pay a service charge, and other homeownership costs may apply. The affordability assessment will consider the mortgage, rent, service charge and other relevant housing costs. Eligibility, affordability checks and property availability apply.
Shared Ownership costs and affordability will depend on your circumstances and the home you choose.
Browse Shared Ownership guides
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Final thoughts
Family support can help some buyers purchase a home sooner, but it should not place a family member’s finances, savings or home at risk.
Agree how the support will work, tell the mortgage lender and solicitor, and put the arrangement in writing. A mortgage adviser, solicitor and, where needed, qualified tax adviser can help everyone understand the arrangement before committing.
This article provides general information only and is not mortgage, legal or tax advice. Rules, thresholds, mortgage products and eligibility requirements can change. Seek qualified advice based on your circumstances before making a financial commitment.
