The Bank of Mum and Dad

If you have been dreaming of buying your first home, but can’t seem to get the cash together, don’t worry - you are not alone. One in four properties purchased this year will be financed, at least in part, with the help of parents and the so-called 'Bank of Mum and Dad'. According to research by Legal and General, parents will hand over an average of £17,500[1] per child to help with a deposit, surveying fees, legal costs and stamp duty.

“We’ve seen property prices rise in different areas up and down the country over the last few years, which can make it difficult for first time buyers to get together the deposit they need to get on the first rung of the property ladder, particularly if they are having to pay out money rent” said Adrian MacDiarmid of Barratt Homes.

“What we’re seeing is many first-time buyers having to rely on parents or grandparents to help – sometimes being given their inheritance early or using parents’ savings. The so-called Bank of Mum and Dad is assisting in providing large cash deposits as gifts.”

But are there ways around this reliance on lump sums?

[1] Source: Legal & General

They can act as guarantors

If your parents can't help you with the deposit, they may be able to act as guarantors for you instead. This means that if you are unable to make the mortgage payments, your parents guarantee to pick up the bill.

However it’s worth remembering that your parents would be providing additional security, which will be at risk if you default on the mortgage. Whilst parents are keen to assist their children in getting on the property ladder, it shouldn’t necessarily be done at the expense of their financial security or indeed their standard of living.

Help with a family offset mortgage

Another option is a "family offset" mortgage where parents use their savings to help their children or grandchildren on to the property ladder. These deals allow you to retain ownership of the money that you put up for a deposit.

The advantage is that the savings remain in the name of the parents and can revert to them at a later date. With this type of deal, you put your cash into a linked savings account. The money acts as a deposit and will lower the monthly mortgage repayment, as interest is charged only on the balance remaining.