More parents than ever are supporting their children by providing deposits for homes. If you’re hoping to help your child get on the property ladder, here’s what you need to know…
The ‘Bank of Mum and Dad’ is a term that refers to parents providing financial support to their adult children, often when it comes to large expenses, such as the money needed for a deposit on a home. And, with rising property prices and living costs, the Bank of Mum and Dad is becoming more common than ever.
New data from fintech company Twenty7tec suggests that family wealth is playing a bigger role than ever in property purchases – support provided by parents has increased by 46% over the past five years. The Bank of Mum and Dad now funds more than 10% of buyer deposits – up from 6.9% back in 2020.
It’s not just first-time buyers who are getting family support, either. More and more parents are helping their adult children further down the line, with parental contributions for existing homeowners rising by 39%, from 2.19% to 3.05%.
How to support your children
Of course, most people would love to help their children achieve the security of homeownership. Research conducted by HomeOwners Alliance, in 2024, found that more than half (54%) of homeowners with adult children have already (or expect to) help their children financially when it comes to buying a home. If this is something you hope to do, too, there are several ways you can go about it:
• Giving them a financial gift (i.e. gifting them the deposit)
• Loaning them the money
• Taking out a retirement interest-only mortgage (RIO)
• Releasing equity from your own home
• Taking out a guarantor mortgage
• Taking out a family offset mortgage (linking your savings to their mortgage)
• Getting a joint mortgage
Joining the property ladder
It’s clear that financial support – often from parents – is becoming a key factor in the ability to get on the property ladder. And, with the stamp duty changes coming into effect from 1 April 2025, affordability is going to become an even greater challenge for first-time buyers. This support often goes beyond simply gifting a deposit, as more families become financially stretched and need to come up with different strategies to support their children, such as releasing equity from their own home or acting as a guarantor. Nathan Reilly, director at Twenty7tec, agrees that families are now passing down wealth in new ways.
‘[It] could be in the shape of early inheritance planning to more structured financial transfers – rather than simply gifting deposits,’ he says.
Home ownership attainability
However, with some homebuyers able to receive financial support, where does that leave those who have no family backing?
‘With our data highlighting the increasing role of family wealth in home buying, it begs the question, will home buying soon only be attainable for those with access to family wealth?’ asks Reilly.
If you’re considering lending money to your children for a property purchase, it’s essential to understand the financial and legal implications beforehand. Seeking advice from an experienced mortgage broker and financial expert can help you navigate the complexities, such as the seven-year inheritance tax rule linked to gifts (which means no tax is due on any gifts you give if you live for seven years after giving them). Naturally, this rule could impact the tax-free status of the money if you were to pass away within seven years. Planning carefully now can help avoid potential complications in the future. We’re here to help with advice and any questions you may have.