By Daniel James Residential, Oswestry
Rising house prices and living costs are making it harder than ever for young people to buy their first home. As a result, many are turning to the “Bank of Mum and Dad” for financial support. In fact, over half of first-time buyers in 2023 relied on help from their parents.
If you’re wondering how to support your child in buying a home, this guide covers everything you need to know, from financial assistance options to tax implications and expert advice.
What Is the Bank of Mum and Dad?
The “Bank of Mum and Dad” refers to parents helping their children financially with significant life expenses—most commonly buying a property. With growing affordability challenges, this type of support has become increasingly common.
Recent research (April 2024) found:
• 54% of homeowners with adult children have already helped or plan to help their children buy a home.
• 59% of parents worry about their children’s chances of owning a home in the future.
• 50% wish they could offer more financial support.
• 25% feel guilty for not being able to provide greater assistance.
Even if you’re unable to provide direct financial help, there are ways to support your child’s journey to homeownership. Let’s explore the options.
How Can Parents Help Their Children Buy a Home?
Parents can assist in several ways, whether through financial contributions or other means. Here are some of the most common options:
1. Gifted deposits – Providing money with no repayment requirement.
2. Loans – Lending money with agreed repayment terms.
3. Retirement interest-only mortgages – A suitable option for older parents.
4. Guarantor mortgages – Acting as a guarantor to help your child secure a mortgage.
5. Family offset mortgages – Using family savings to reduce the mortgage cost.
6. Joint mortgages – Becoming a co-owner of the property.
7. Joint Borrower, Sole Proprietor mortgages – Assisting with repayments without owning the property.
Gifting Money for a Home Deposit
One of the most common ways parents help is by gifting money toward a deposit. A larger deposit helps your child access better mortgage deals or increases their borrowing power.
Most lenders accept gifted deposits, but they require a written declaration stating that:
1. The money is a genuine gift (not a loan).
2. The parents will not have a financial interest in the property.
This ensures the lender knows the money doesn’t need to be repaid and that parents won’t claim ownership of the home.
For more details, see our guide: Gifted Deposits Explained.
Tax Implications of Gifting Money
When gifting money for a home purchase in the UK, there’s no immediate tax liability for parents or children. However, there are potential inheritance tax (IHT) implications to consider:
• Annual Exemption: Each parent can gift up to £3,000 per year, tax-free. If unused, the allowance can roll over for one year, allowing a couple to gift up to £12,000 tax-free.
• Seven-Year Rule: Gifts exceeding the annual allowance may become part of the parent’s estate for IHT purposes if they pass away within seven years. If the total estate (including the gift) exceeds £325,000, IHT of up to 40% could apply.
The tax liability reduces the longer the parent lives after gifting:
• Gifts made within three years are taxed at 40%.
• After three years, the tax rate gradually decreases.
To minimize future tax liabilities, consult a financial adviser for tailored advice.
The Importance of Financial Advice
While helping your child buy a home is a generous act, it’s essential to consider how it might impact your own financial security. Research by Legal & General found that 17% of over-55s who supported their children financially had to accept a lower standard of living as a result.
Before committing to any financial support, seek independent financial advice. A professional adviser can help you determine how much assistance you can afford to give without jeopardizing your retirement plans or long-term goals.
Ways to Support Your Child Without Financial Contributions
If you’re unable to provide financial assistance, there are other ways to help your child on their homeownership journey:
• Offer guidance: Teach them about budgeting, saving, and managing credit scores.
• Provide accommodation: Let your child live at home temporarily to save for a deposit.
• Co-sign or guarantee: Consider guarantor mortgages or joint borrower arrangements to strengthen their mortgage application.
Final Thoughts
Supporting your child to buy their first home can set them on the path to long-term financial security. Whether you’re gifting money, offering advice, or simply encouraging good financial habits, your help can make a significant difference.
If you’d like tailored advice on how to assist your child, contact Daniel James Residential in Oswestry at oswestry@danieljamesresidential.com. Our team will connect you with trusted financial experts who can guide you through the process.
Take the first step today and help your child achieve their homeownership dreams!
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www.danieljamesresidential.com
T: 01691 674494
Final Thoughts
T: 01691 674494
Oswestry’s estate agent
http://Www.danieljamesresidential.com
