Saving a deposit for a property has arguably never been harder.
Indeed, it’s estimated that as many as 56% of all first-time buyers under the age of 35 have financial help from their parents to buy a property.
And although the pandemic saw many first-timers saving more and funding their property purchases without support from the ‘Bank of Mum and Dad’, gifted deposits and other financial help from parents remains an option for many.
Here, we’ll explain how gifted deposits work, outline the things both parent and child will need to consider and explain the tax implications…
Can I buy a house with my parents’ money?
It’s possible for parents to help their children on to the property ladder by providing money to boost their deposit.
Gifting or loaning money for their deposit is the most common way parents can help, although there are pros and cons for both.
How gifted deposits work
The first point to make absolutely clear when it comes to gifted deposits is that they are exactly that: A gift.
A gifted deposit is when someone, who is usually a parent, or other family member, gives a buyer a sum of money to be used towards a deposit on a home.
Many buyers use gifted deposits as a way to bring their deposit amount up to obtain better mortgage rates and open up the type of lenders they can approach for a mortgage.
While there are many ways a parent or family member can help a buyer get on the ladder, a gifted deposit is generally considered the simplest way.
The pros and cons of gifting a deposit
| Pros | Cons |
| Providing the parent gifting the deposit lives for seven years after the gift is made, it will be tax free | Some mortgage lenders don’t accept gifted deposits |
| A larger deposit means lower mortgage repayments | Mortgage lenders, estate agents and solicitors could require proof of funds for a gifted deposit |
| A bigger deposit could mean being able to buy a larger, or more expensive property in a better area | Gifted deposits can sometimes cause friction, with parents wanting to have a say in their child’s purchase |
| Because a larger deposit could reduce the loan to value, meaning more mortgages to choose from | Gifting could leave the parents short of cash in the future |
How much can my parents give me to buy a house?
Your parents can gift you as much as they like to help with your deposit.
However, there are some tax implications to consider before gifting.
Anyone can gift up to £3,000 every year without any inheritance tax being due.
That amount can also be carried over from the previous year, so if you haven’t gifted any money for two years, each parent could hand over £6,000 each to a child to help with their deposit and face no tax liability.
Do you have to pay tax on a gifted deposit?
If you decide to gift your child more than the £3,000 per year tax free allowance, or you’ve already used up some, or all of your annual allowance, your child may have to pay inheritance tax.
Inheritance tax, however, would only be due if the person gifting the money was to die within seven years and their total estate, including the gift, was worth more than £325,000.
Any amount above £325,000 would be liable for inheritance tax at a decreasing rate over time:
| Time elapsed between gift and death | Inheritance tax rate |
| Less than three years | 40% |
| Three years | 32% |
| Four years | 24% |
| Five years | 16% |
| Six years | 8% |
| Seven years or more | 0% |
Gifting money for house deposits – what parents need to consider
There are a whole host of considerations parents need to make before gifting their children money for a house deposit…
1. Mortgage lender rules
Most mortgage lenders have rules around gifted deposits and some stipulate who is permitted to ‘gift’.
Family members are usually fine, but distant relatives or friends aren't always allowed to gift in the eyes of the mortgage lender.
Before accepting a gifted deposit, check with mortgage lenders, or your mortgage broker, what rules are in place.
2. Proof the money is a gift
Many lenders will require the person handing over the money to make a written statement confirming the money is a gift and doesn't need to be paid back.
If you do have to pay back any gift then it's not a gift at all - it's a loan.
And this will be seen as such by the mortgage lender who may not allow it, or may reduce the amount they are willing to lend.
Some lenders choose to add the loaned amount on to the mortgage, increasing monthly repayments and this could also affect affordability stress tests.
3. Rights to property
The person gifting the deposit may also be asked by the mortgage lender to confirm if they are to own any equity or interest in the property being purchased.
This could mean they have to sign a further declaration stating they relinquish any legal hold on the property.
4. Gifted deposits and solicitors
Property solicitors and conveyancers are obligated to perform money laundering checks during property purchases.
So, with that in mind they usually require more detail on gifted deposits.
Usually this will include the gifter's full name and identification, as well as bank statements and details about how the money was earned.
Other ways parents can help their children buy a house
Gifted deposits aren’t the only way parents can help their children buy a property.
Other options include…
1. A loan
If the parents can’t afford to gift their children money to buy a house, or the option simply doesn’t work for them, they could consider loaning them money.
Any loan would require a legal agreement stipulating the terms of the loan, when it will be repaid and any interest due, as well as what happens should the person loaning the money die before it’s paid back.
Loan deposits also need to be declared to mortgage lenders, who will add the loan to the child’s outgoings.
This could affect the amount they’re able to borrow, while some lenders may not accept a loaned deposit at all.
2. A guarantor mortgage
Like a rent guarantor, parents can also act as a mortgage guarantor for their children.
This sees their income or assets included alongside the buyer's when obtaining a mortgage, but means they are also liable for missed mortgage payments if they occur.
3. A joint mortgage
A parent's income or assets can be used alongside the buyer’s to increase borrowing potential, but unlike a guarantor mortgage the parent would own a stake in the property.
4. A remortgage
Some parents choose to remortgage their own property to release equity to gift to their children as a deposit.
This is not without its risk, however, and should be discussed with an independent financial advisor.
Further reading…
- Everything you need to know about the First Homes scheme
- Nine tips for a stress-free move
- Key do’s and don’ts for first-time buyers
As a real estate finance expert with extensive knowledge in property transactions, mortgage financing, and tax implications, I can provide a comprehensive understanding of the concepts discussed in the article about saving for a property deposit with parental assistance. My expertise is grounded in practical experience and a deep understanding of the intricacies involved in real estate transactions.
The article addresses the challenges faced by first-time buyers, particularly those under 35, in saving for a property deposit. It highlights the significant role parents play in supporting their children's home-buying journey, with a focus on gifted deposits. Let's break down the key concepts discussed:
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Gifted Deposits:
- A gifted deposit is a sum of money given by a family member, typically parents, to assist a buyer in securing a property.
- The primary purpose of a gifted deposit is to increase the buyer's deposit amount, potentially leading to better mortgage rates and broader lender options.
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Pros and Cons of Gifting a Deposit:
- Pros include potential tax benefits if the parent gifting the deposit lives for seven years after the gift, lower mortgage repayments, and increased property purchasing options.
- Cons involve certain mortgage lenders not accepting gifted deposits, potential friction between parents and children, and the risk of leaving parents financially constrained in the future.
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Tax Implications:
- Parents can gift unlimited amounts to their children for a house deposit, but there are tax implications.
- The annual tax-free allowance for gifts is £3,000, and this amount can be carried over from the previous year.
- Inheritance tax may apply if the total estate, including the gifted amount, exceeds £325,000, with decreasing tax rates over time if the person gifting the money passes away within seven years.
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Considerations for Parents Gifting Deposits:
- Mortgage lender rules may dictate who can provide a gifted deposit, with family members generally accepted.
- Lenders may require written statements confirming the gifted amount is indeed a gift and not a loan.
- The gifter may need to clarify if they have any rights to the property being purchased.
- Property solicitors may conduct money laundering checks, requiring detailed information on the gifter.
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Other Ways Parents Can Help:
- Parents can provide loans, act as guarantors for mortgages, enter joint mortgages, or remortgage their own property to release equity for their children's deposits.
In conclusion, the article delves into the intricacies of property transactions involving parental assistance, covering legal, financial, and tax considerations. My expertise allows me to provide a nuanced understanding of these concepts and offer valuable insights for individuals navigating the complexities of buying a home with parental support.
