Can My Parents Help Me Buy My First Home?

One of the questions I hear quite regularly from first-time buyers is:

“Can my parents help me buy my first home?”

For many people, the answer is yes.

With property prices where they are, saving a deposit can be one of the biggest challenges for first-time buyers. It’s not unusual for parents or other family members to help their children get onto the property ladder.

But there are several different ways they can help, and the option that works best will depend on your circumstances, their financial position and the mortgage lender involved.

The most common option – a gifted deposit

The most straightforward way for parents to help is often by providing some or all of the deposit as a gift.

For example, if you're buying a £250,000 property and have saved £10,000 yourself, your parents might gift you a further £15,000.

You would then have a £25,000 deposit, giving you a 90% loan-to-value mortgage rather than a 96% LTV mortgage.

This could potentially give you access to a wider range of mortgage options.

The important point is that the money generally needs to be a genuine gift rather than a loan.

Your parents would normally need to confirm that they don't expect the money to be repaid and that they won't have any ownership interest in the property as a result.

There will also usually be paperwork involved to satisfy the lender and solicitor.

What if my parents want the money back?

This is where things can become more complicated.

If your parents are lending you the money rather than gifting it, the lender needs to know.

A repayment obligation could be treated as a financial commitment and may affect the affordability assessment.

It's important not to describe something as a gift if there is actually an expectation that you'll repay it.

I've seen situations where family members understandably want to help but haven't initially appreciated how the arrangement needs to be structured from a mortgage lender's perspective.

Being upfront from the beginning makes the process much easier.

Can my parents help without giving me a deposit?

Yes.

A deposit isn't the only way parents can potentially help.

Depending on the circumstances and lender criteria, there are mortgage arrangements where a family member can support an application without simply handing over a large amount of cash.

This could involve a family member using savings or other assets as security, or becoming involved in the mortgage arrangement in another way.

These types of arrangements can be more complicated, and they aren't suitable for everyone.

There can also be important financial and legal implications for the parent providing the support, so it's important that everyone understands exactly what they're agreeing to.

What if my parents don't have spare cash?

This is another situation I've come across.

Parents may own a property or have substantial equity in their home but not have tens of thousands of pounds sitting in a savings account.

Depending on the circumstances, there may be other ways of using family wealth to help with a purchase.

However, taking additional borrowing against a parent's home is a significant decision.

The parent needs to be comfortable with the potential consequences and understand that their own finances and property could be affected.

It's not something I'd recommend treating simply as a way of getting around the deposit requirement.

Does the money have to come from my parents?

Not necessarily.

Depending on the lender, gifted deposits may also be accepted from other close family members.

The exact requirements can vary, so it's important to check the lender's criteria rather than assuming that every lender will accept every type of gifted deposit.

This is one of those areas where getting the mortgage advice sorted before you start making offers can save a lot of unnecessary complications later.

Will my parents have to pay tax?

There can be tax considerations when large amounts of money are gifted, particularly around inheritance tax.

The mortgage itself isn't normally the issue, but the wider financial circumstances of the person making the gift can matter.

For that reason, if your parents are considering giving you a substantial amount of money, it can be sensible for them to take independent tax or legal advice before doing so.

Your mortgage adviser can explain what the lender requires, but they shouldn't be relied upon for personal tax advice.

Does helping me affect my parents' finances?

It can.

This is something that I think is sometimes overlooked.

If your parents give you £20,000 towards your deposit, that's £20,000 they no longer have available for their own circumstances.

If they're using savings, borrowing against their property or entering into a formal arrangement with a lender, there can be longer-term consequences.

I always think it's important to look at the situation from both sides:

“Can my parents afford to help me?”

and

“Can I afford the mortgage once they've helped me?”

The aim shouldn't simply be to get you over the line for the purchase. You also need to make sure the mortgage is affordable and sustainable.

What information will the lender need?

If you're receiving a gifted deposit, the lender and solicitor will usually want evidence of where the money has come from and confirmation of the nature of the gift.

This is part of the normal process of establishing the source of funds.

It doesn't mean there is anything wrong with receiving help from your parents. It's simply an important part of the checks involved in buying a property.

The earlier you tell your mortgage adviser that you're receiving help, the easier it is to make sure the mortgage application is structured correctly.

So, can my parents help me buy my first home?

Yes, in many cases they can.

Whether they provide a gifted deposit, help in another way or use their own assets to support the purchase, there are a number of potential options.

The important thing is to understand exactly how the arrangement will work before you commit to a property.

I've worked with first-time buyers where parental help has made the difference between continuing to rent and being able to buy their first home.

But the right solution isn't necessarily the one that gets you the biggest deposit.

It's the one that works for you, your parents and the mortgage lender, both now and in the future.

Thinking about buying your first home?

If your parents are able to help with your purchase but you're not sure how that could work, it's worth having the conversation before you start making offers.

At Matthew Bugden Mortgages, I can look at your circumstances, explain the options available and help you understand what you may be able to borrow.

Whether you've saved the deposit yourself or you've had a helping hand from your family, getting the right advice at the beginning can make the rest of the mortgage process much simpler.

The information provided is for general guidance only and does not constitute mortgage, legal or tax advice. Mortgage availability and affordability are subject to individual circumstances, lender criteria and the information available at the time of application. Where appropriate, you should seek independent legal or tax advice. Your home may be repossessed if you do not keep up repayments on your mortgage.