The Bank of Mum and Dad – How to help your child buy a home

Homebuyers are increasingly turning to the Bank of Mum and Dad for help. Here's how you can help your children get on the property ladder, and everything you need to know about gifted deposits, tax implications and Bank of Mum and Dad mortgage options.

Angela Kerr Director, Editor

What is the Bank of Mum and Dad?

“The Bank of Mum and Dad” is commonly used when referring to parents who provide financial assistance to their adult children for major life expenses like buying a house. It has become more common due to rising house prices and living costs.

In fact, 61% of first time buyers are expected to get help from the Bank of Mum and Dad to buy a property in 2023, according to research by property firm Savills.

Feeling Guilty

Our own research in April 2024 found that more than half (54%) of homeowners with adult children have or expect to help their children financially to buy a home.

Amongst home owning parents with adult children who do not own their home:

• 59% worry about their children’s chances of owning in the future
• Half (50%) wish they could provide more financial support than they can
• And 1 in 4 (25%) feel guilty about not being able to provide more support

If you worry about your child’s ability to buy a home, read on for ways you may be able to help. If you can’t afford to make a withdrawal from the Bank of Mum and Dad, there are still some ways you may be able to help your son or daughter buy a home. And even if you can afford to help your child financially, it’s important to know about how the process works and the potential tax implications. We cover all of this below.

How can I help my child buy a home? 

There are several ways parents can help their children buy their first home:

• A financial gift (gifted deposit)
• A loan
• Taking out a retirement interest-only mortgage
• Taking out a guarantor mortgage
• Family offset mortgages
• Getting a joint mortgage
• Taking out a Joint Borrower, Sole Proprietor mortgage

Find out more about the range of mortgage options, get fee-free advice from our mortgage experts at L&C

Can I gift my child money to buy a home?

Yes. The majority of parents give their children the gift of cash to make up the shortfall in their deposit and boost their borrowing power so they can access a cheaper mortgage deal and/or borrow more.

Most banks will accept a deposit that has been gifted (or partly gifted) but they may ask for written confirmation from you stating it is a true gift. There are two reasons for this. Firstly, for affordability calculations they want to know the money isn’t a loan that requires regular repayments. Secondly, they want to know that if the worst came to worse and they had to repossess the house, you don’t have an interest in the property.

Find out more about what you need to declare in our guide Gifted Deposits Explained 

What are the Bank of Mum and Dad tax implications?

Children won’t have to pay any immediate tax on money gifted to them from the Bank of Mum and Dad in the UK. And parents won’t pay any tax on the gift either.

However, down the road an inheritance tax bill could be due. Everyone is allowed to give up to £3,000 a year away, and it is immediately exempt from inheritance tax. You can also carry over any unused allowance from the previous year. This means two parents could gift their child £12,000 without inheritance tax being a problem if they hadn’t gifted any other money to anyone in the previous two years.

If you want to give more than that – or for some other reason don’t have your full annual inheritance tax allowance to play with – then the money could be liable for inheritance tax.

If the person gifting the money was to die within seven years it would still be classed as part of their estate for inheritance tax purposes. This means if their total estate, including the gift, is worth more than £325,000 then up to 40% tax would be due on the excess.

The amount of tax due on the gift decreases as the seven years elapse. How much tax is due on the gift will depend on how many years have passed since it was handed over, as set out in the table below.

Read more in our guide How to keep on top of inheritance tax.

Do I need to get financial advice before I help my child buy a home?

Research from Legal & General has found that 17% of over 55s were enduring a lower standard of living after helping their children buy a house.

So before you get involved in your child’s house purchase, we would strongly advise you get independent financial advice. An IFA can help you work out exactly how much assistance you can afford to give.

A study again by Legal & General and the Centre for Economic and Business Research in 2018 found 17% of parents lending money to their kids through the so-called ‘Bank of Mum and Dad’ are – or will be – worse off as a result. 10% of those surveyed felt less financially secure. 27% of parents and grandparents aged between 55 and 64 said they were accepting a lower standard of living as a result of acting as lender to a loved one.

How can parents protect a house deposit gift?

If you are giving your child money for a deposit to buy a house and they are buying a house with a partner or buying a house with friends, you can protect the money you have gifted in the event they split up with a deed of trust.

The solicitor working on the property purchase can draw up a deed of trust. This states who the money was gifted to – so you can specify you gave it to your child and not to them and their partner. If the couple break up this document will ensure your child retains ownership of your financial gift. It can also clarify if the money is a gift or a loan, and if the latter when it needs to be paid back.

The people buying the property can also use a deed of trust to lay out responsibilities for outgoings and what happens to the property if their relationship breaks down. See our advice guide on Deed of Trust which explains in detail what is involved.

Bear in mind though, that if your child goes on to marry the person they bought the property with this could affect the deed of trust.

While we are talking about the legal side of gifting money you should also consider updating your will to reflect the gift that has been made. Children may also want to write a will.

Looking to get a Deed of Trust with your house purchase? Conveyancers can pull one together alongside handling all the other legal elements of your purchase. Get a quote from a conveyancing solicitor today.

Getting a loan from your parents to buy a house

It may be that you can’t, or simply don’t want to, gift your child money to help them buy a house. Another option is to lend them the money.

It is relatively straightforward to draw up a loan agreement. This should set out any interest being paid on the loan and when it needs to be repaid – for example when the property is sold. You should also include what happens to the money if anyone involved in the loan dies, or if the parents need the money back.

Just be aware that a loan would need to be declared to a mortgage lender if one is involved in the purchase. This could have major implications for a mortgage. A loan could affect mortgage affordability calculations as lenders will factor repayments on the loan into the child’s outgoings.

Some banks won’t accept a borrowed deposit as the money comes with strings attached. It will limit the number of deals your child will be able to apply for.

To make sure your child gets the best mortgage deal, get fee-free advice from our mortgage experts at L&C

Gifting a deposit by taking out a retirement interest-only mortgage

One way to raise cash to give your child a house deposit is to take out a retirement interest-only mortgage against your house. When you take out a retirement interest-only mortgage, you release equity from your home. You then make repayments on the interest on your loan monthly (this means the amount you owe doesn’t increase over time). And you don’t have to repay the capital until you die or go into long-term care. At this point your home is sold, and the lender is repaid from the proceeds. Read more in our guide on Retirement interest-only mortgages.

The process of buying a house with the Bank of Mum and Dad

Buying your first home with money from your parents? Here’s how it will affect the process:

1. Inform your solicitor. When you appoint a conveyancing solicitor make sure they know that some or all of your deposit is coming from your parents. Also let your mortgage broker know as it can affect mortgage offers.
2. Evidence of loan or gift. Lenders, solicitors and estate agents may need details about the money. A letter from your parents explaining that the money is a gift, including the exact amount, will be useful. If it is a loan then an agreement stating how much is being lent, any interest due and the repayment terms will be needed.
3. Sort out ID. Your parents, as well as you as the purchasers, will need to provide proof of identity to your solicitor. Find out what your solicitor will accept and arrange it as soon as possible.
4. Proof of funds. Anti-money laundering checks mean you will have to provide evidence of where the money for your deposit has come from. This means your parents will need to provide bank statements showing how they have built up that money.
5. Legalities. Ask your solicitor to draw up a deed of trust to show what happens to the money in the future. Make sure this covers whether the money needs to be repaid and what happens if the property is sold.

The advantages and disadvantages of the Bank of Mum and Dad

Gifting money to help your child buy a house can be wonderfully generous, but it can throw up some problems. Here’s the pros and cons of using the Bank of Mum and Dad in the UK.

Pros of using bank of Mum and Dad

• A tax-free gift. Provided the parents live for seven years after the gift the money will be tax-free. It also helps parents reduce the size of their estate, which can reduce a future inheritance tax bill.
• Lower monthly repayments. The Bank of Mum and Dad can help people put down a bigger deposit on their first home. This means they can borrow less and possibly get a lower interest-rate and access the best first time buyer mortgage deals, which means lower monthly repayments.
• A better home. By helping boost the deposit the Bank of Mum and Dad could help their child buy a better property. Whether it is a slightly bigger home, or in a better area this could mean your child doesn’t need to move again in a couple of year. This could save them thousands in the cost of buying and selling property.
• Better mortgage choices. A bigger deposit can open up the mortgage market with more deals to choose from.

Cons of using bank of Mum and Dad

• Reduced mortgage options if loaning rather than gifting. Loans from the Bank of Mum and Dad can have repercussions on your mortgage. Some lenders won’t accept lent deposits as it means someone else has an interest in the property.
• Additional information required by lenders. Mortgage lenders, estate agents and solicitors can all request to see proof of funds. Parents can have to show evidence of where the money they are gifting has come from. This can mean presenting numerous bank statements and certified ID.
• Relationship breakdowns. These days most people buy a home with a friend or partner. In the event of that relationship breaking down, you could find your child’s ex waltzing away with half your money. Prevent this by getting a deed of trust drawn up.
• Family friction. If the Bank of Mum and Dad lends to one child in a family, it can cause friction with other children which overshadows their relationship forever more.
• Smaller savings. Gifting money to your children could leave you struggling in the future. Before you open up your own branch of the Bank of Mum and Dad assess your finances and work out how you can afford to help.

4 Alternatives to a Bank of Mum and dad gift or loan

If you’re asking how can I help my daughter or son buy a house and can’t afford to give them a lump sum of money, can you help by taking out a ‘Bank of Mum and Dad mortgage’?

1. Guarantor mortgages

The first type of ‘Bank of Mum and Dad mortgages’ are guarantor mortgages. This is when someone – usually a family member like a parent – acts as a guarantor by putting up savings or their property as security. If you use your savings as security you’ll earn interest on them but your savings will typically be tied up for a fixed period or until the amount owed falls below a certain threshold. You may be able to take out a no deposit mortgage with a guarantor mortgage.

This can make it much easier to get a first time buyer to get a mortgage but the risks to the guarantor can be significant. If the borrower misses payments or their house ends up being repossessed, the guarantor could lose some or all of their savings if they used them as security. While if you used your home as security, the worst case scenario is that you could lose your home. So take independent financial advice before going ahead with this. Read more in our guide Guarantor mortgages explained.

2. Family Offset mortgages

With family offset mortgages, the amount of interest the borrower pays is reduced by linking their mortgage deal to a family member’s savings account. There are some drawbacks though, for example the parent won’t earn interest on their savings. Plus, if the parent withdraws some of the cash, the borrower’s mortgage payments will increase. And lenders will usually put a lower limit on the amount of savings in the linked account.

3. Getting a joint mortgage

If you’re asking can I buy a house with my daughter or son, the answer is you could take out a joint mortgage with your child, making you equally liable for the repayment of the loan. The upside is that with your combined incomes, you may be able to afford to take on a larger loan.

The big drawback to this plan is the additional stamp duty rate. So if you already own a property, then your child’s new home would count as a second home. This means there would be an additional 3% stamp duty due, which could make the property significantly more expensive.

Plus if it is your second home and you are still on the mortgage when the property is sold, there may be capital gains tax (CGT) liabilities.

4. Taking out a joint borrower, sole proprietor mortgage

With these mortgages, which are another Bank of Mum and Dad mortgage option, you apply with someone who’s willing to accept joint responsibility for making mortgage payments without having a legal claim to the property.

With JBSP mortgages, the parent and child will both be named on the mortgage. But only the child will be named on the property’s deeds. This means the stamp duty surcharge can be avoided.

However, both applicants will need to pass affordability checks to show they can afford the mortgage payments.

Before considering taking out any type of Bank of Mum and Dad mortgage, make sure you get independent financial advice to make sure you’re making the best decision for you.

How many first time buyers get help from the Bank of Mum and Dad?

Gifts and loans from the Bank of Mum and Dad added up to £8.8 billion in 2022, according to the latest analysis from property firm Savills. Some 46% of all mortgaged first-time buyers, 170,000, had financial help from family in buying a house in 2022. This is down from a peak of 198,000 in 2021.

But this figure is expected to hit 61% in 2023, a number not seen since before the Help to Buy equity loan scheme was introduced. While the Institute of Fiscal Studies said parents would provide £17bn in gifts and informal loans this year and that most transfers come from the over-50s to children in their late 20s and early 30s.

Help your child help themselves

But whether or not you can help your child by giving financial support from the Bank of Mum and Dad, part of helping your son or daughter buy a house is about making sure they’ve done everything they can to help themselves financially including:

• Encourage them to boost their credit score: When you apply for a mortgage or any other type of credit, the lender will check their credit score. So advise your son or daughter to check their credit scores and boost them as much as they can. The higher their score, the more likely they will be to be accepted for a mortgage, but they may also be able to borrow a larger amount and at better rates too. Read our guide 11 tips to improve your credit score for a mortgage.
• Lifetime ISAs: Lifetime ISAs are available to anyone aged 18-39 and are designed to help someone save for their first home or their retirement. You can save up to £4,000 per tax year and the government will add a 25% bonus to their savings. Read our guide on the best Lifetime ISAs – updated each month.
• Get them to set a budget: Owning a house comes with lots of additional expenses like maintenance costs. So getting your child to go through their finances and set a budget will not only get them in better financial shape now but it will get them into good habits once they’re a homeowner. Read our guide on the costs of buying and owning a house.
• Check first time buyer mortgage options. There are always new mortgage products coming to market. So ask your child to speak to a fee free mortgage broker before they proceed to check they have the best rate available. See our guide to the best first time buyer mortgage rates that we update monthly.
• Consider 100% mortgage. These products have just returned to the market and are worth checking out as it means you can buy a house with no deposit at all. See our guide on 100% mortgages.

What is the bank of mum and dad scheme?

Housebuilder Persimmon has a ‘Bank of Mum and Dad scheme’ that means if you’re a first time buyer and a family member contributes 5% or more towards the price of your home, they’ll receive a cash thank you from the builder after completion. This offer applies to selected plots only.

Frequently Asked Questions

Explore your mortgage options, get fee-free advice from our mortgage experts at L&C