How can parents help first-time buyers
What is the ‘Bank of Mum and Dad’?The ‘Bank of Mum and Dad’ refers to parents helping their children buy their first home. You can support them in several ways, from lending or gifting them a deposit to taking out a mortgage.
Lending your children money for a deposit is straightforward. You should draw up a loan agreement outlining when the loan needs to be repaid and if any interest is due. It should also explain what happens if someone dies or the house is sold.
Lending a deposit
Loaning money to your children may affect their mortgage affordability (how much they can borrow). Lenders will add the loan to your child’s outgoings as additional borrowing.
Gifting a deposit
Another way to support your children in buying their first home is by gifting them money for their deposit. If you choose this option, you must write a Gifted Deposit Letter outlining that the money is gifted and not loaned. This is so that mortgage lenders know that the funds don’t need to be repaid and you won’t have any legal right to the property.
The Gifted Deposit Letter should include the following information:
- Your name
- Your child’s name
- The amount of money gifted
- The source of the money
- The nature of your relationship
- Confirmation that it’s a gift that doesn’t require repayments
- Evidence that you are financially able to support
Advantages and disadvantages of lending and gifting a deposit
|Lower monthly repayments as your children can put down a bigger deposit.
|Reduced mortgage options if the deposit is through a loan instead of a gift.
|They’ll access better mortgage deals.
|Lenders may require additional information.
|A tax-free gift, provided you live for seven years after you gift them the deposit.
‘Bank of Mum and Dad’ mortgages
If you don’t have enough money to lend or gift your children a deposit, you can take out a mortgage. Below are the most common types of the ‘Bank of Mum and Dad’ mortgages.
1. Guarantor mortgages
Guarantor mortgages involve you acting as a guarantor to help your children get a mortgage. This means you’ll use your savings or your home as security. If you opt for the former, you’ll earn interest on your savings but won’t be able to access them for three years.
The downside to guarantor mortgages is that if your children don’t keep up with the repayments, you’ll be responsible.
2. Joint mortgages
Joint mortgages mean both you and your children will be named on the mortgage and property deeds. You can use your income and savings to help them buy their first home. However, you’ll also be responsible for the repayments and will need to pay Stamp Duty if you own a second home.
3. Family offset mortgages
Family offset mortgages let you link your children’s mortgage deal to your savings account. This way, they pay a lower interest. However, you won’t earn interest on these savings.
4. Joint borrower sole proprietor (JBSP) mortgages
These mortgages are similar to joint mortgages but have one crucial difference. Both you and your children will be named on the mortgage, but only your children will be named on the property deeds. This way, you won’t need to pay the Stamp Duty surcharge.
Other low-deposit schemes for first-time buyers
Whatever you contribute towards your children’s deposit, we can match it up to a maximum of 5% of the purchase price.
Deposit Unlock lets you buy a new home with a 5% deposit on homes up to £750,000.
Already have a 10% deposit? With Deposit Boost, we can boost your 10% deposit by 5%.
Explore our modern, energy-efficient homes across the UK and fantastic homebuying offers to help you move. Visit or call our Sales Advisers today.