Buying a property as a first-time buyer is a significant milestone for many. However, rising property prices and strict mortgage lending criteria can make owning a home challenging to achieve. Fear not, as there are many ways you can help your children make homeownership a reality.
This guide aims to help you understand the options available and determine whether financially supporting your child is the right choice for you. We’ll focus on two key options:
- Support by providing a deposit
- Support without providing a deposit
How Can Parents Support Their Children with a Deposit for Their First Property Purchase?
Ah, yes—the bank of Mum and Dad, one of the largest mortgage lenders in the UK! Gifting a deposit is probably the most straightforward way a parent can support their children in owning a property.
Remember that if you are gifting cash or savings to your children, you’ll be required to provide a Gifted Deposit Declaration, which is essentially a letter stating that the funds will not need to be repaid. This declaration will also specify that the party providing the gift has no claim to or legal interest in the property’s ownership. This will satisfy lenders that there can be no complications should they ever need to repossess the property.
Additionally, you’ll need to provide evidence of the source of the funds to comply with anti-money laundering regulations. This is often in the form of 3–6 months of bank statements.
It’s also important to note that if you gift a deposit and pass away within seven years of transferring the money, your child may be liable for inheritance tax on that amount.
You can read more about deposits for mortgages here.
Can a Parent Take a Bank or Personal Loan to Provide Their Children a Deposit?
Yes, parents can take out a bank or personal loan to provide their children with a deposit for purchasing a home. This option can be beneficial for the children, as the loan is not their responsibility and therefore shouldn’t impact their affordability assessment.
Can a Parent Provide a House Deposit Without It Needing to Be Gifted?
Yes, a parent can provide a house deposit without it needing to be gifted through options like a loan; however, this will need to be declared to the mortgage lender for their approval.
Another option could be the Barclays Family Springboard Mortgage. In this case, parents can assist by placing savings into a dedicated Barclays bank account, enabling their children to secure a mortgage while earning interest on the funds. You can read more about this option here.
For a more comprehensive understanding of your options, it’s important to consult a professional mortgage broker, such as our team here at The Mortgage Pod.
Can a Parent Remortgage Their Property to Raise Cash for Their Child’s House Purchase?
If you own a property, whether with or without an existing mortgage, you may have the option to remortgage that property to raise capital, which you could then gift to your child for use as a deposit. This could be your existing residential property or even a buy-to-let or investment property.
It’s important to consider the increased monthly payments associated with borrowing more on a mortgage. Therefore, we recommend evaluating your remortgage options carefully. You can Get Started with The Mortgage Pod’s remortgage team here.
How Can a Parent Support Their Children to Buy a Home Without Providing Any Deposit?
Guarantor Mortgages
Parents can act as guarantors on their children’s mortgage. This means that they agree to cover the mortgage payments if their child is unable to do so. By providing this financial backing, parents can help their children secure a mortgage with lower interest rates or without a significant deposit.
Joint Mortgages
Parents can enter into a joint mortgage with their children, where both parties are co-owners of the property. In this arrangement, both the parents’ and the child’s incomes are considered when applying for the mortgage, which can increase the borrowing potential. This option allows parents to share the financial responsibilities while directly participating in the property ownership. It’s also possible to add up to four applicants on a mortgage application.
Joint Borrower Sole Proprietor
This arrangement allows two or more borrowers to apply for a joint mortgage, which can enhance affordability and borrowing potential. This differs from a joint mortgage in that only one party—typically the child—is named on the title deeds as the legal owner of the property. This option can be beneficial for buyers whose income isn’t sufficient to secure the mortgage they need in their sole name but who have the support of a friend or family member willing to be added as a joint borrower.
How Can The Mortgage Pod Help Me Understand Which Option Is Best for Me?
At The Mortgage Pod, we offer expert advice on all things related to home buying. This includes detailed information on how parents can help their children get onto the housing ladder. Please don’t hesitate to contact us or get started with our team here today.
FAQ’s
Can parents gift their children a house deposit?
Yes, parents can gift their children a house deposit. Lenders will require a Gifted Deposit Declaration confirming the funds are non-returnable and the provider of the gift has no interest in the property.
Can parents put their savings into a specific bank account, rather than gifting it to children?
Yes, Barclays Family Springboard Mortgage can be a great option.
Who Can Gift a Deposit for a Mortgage?
Most mortgage lenders will only accept a gifted deposit from an immediate relative, such as a parent, sibling, or grandparent. However, some mortgage lenders have more flexible criteria, therefore allowing a friend, employer, or landlord to gift a deposit.
