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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.
“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.
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:
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.
There are several ways parents can help their children buy their first 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
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.
| Years between gift and death | Inheritance tax rate |
|---|---|
| Less than three | 40% |
| Three | 32% |
| Four | 24% |
| Five | 16% |
| Six | 8% |
| Seven or more | 0% |
Read more in our guide How to keep on top of inheritance tax.
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.
You don’t have to make life’s big financial decisions alone. Get the right IFA for you today with our partners at Unbiased.
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.
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.
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.
Buying your first home with money from your parents? Here’s how it will affect the process:
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.
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’?
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.
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.
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.
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.
Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.
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.
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:
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.
Yes. Most banks will accept a gifted deposit from a parent to their son or daughter but they may ask for written confirmation from you stating it is a true gift. Find out more about what you need to declare in our guide Gifted Deposits Explained
There is no limit in how much parents can give their children through the Bank of Mum and Dad. They can pay for their house completely if they wish. But there may be inheritance tax implications – read our guide on How to avoid inheritance tax.
Depending on factors including the amount of money you want to give a child, there could be inheritance tax implications. Read our guide on How to avoid inheritance tax and it’s a good idea to get specialist tax advice too.
Parents handed over £6.3 billion to help their kids get onto the property ladder in 2021 according to Legal & General – this puts the Bank of Mum and Dad in the top ten lenders in the UK. If you want to give your child money to buy a house, read our guide Gifted Deposits Explained to find out how the process works.
Explore your mortgage options, get fee-free advice from the mortgage experts at L&C
HomeOwners Alliance Ltd is registered in England, company number 07861605. Information provided on HomeOwners Alliance is not intended as a recommendation or financial advice.
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