The Bank of Mum and Dad - What to consider before cashing out to the kids

Key Takeaways

• A gifted deposit is when a family member or friend gives you some or all of your deposit with no expectation of repayment. It's considered a gift, not a loan.
• Parents often contribute to their child's deposit to help them afford a home.

• 30% of first-time buyers who received financial help from parents were able to afford a home in a better neighborhood or with more desirable features.
• 22% found the home-buying process smoother and less stressful due to parental financial assistance.
• 11% secured better mortgage rates or terms, saving money in the long run.

• Most UK parents gift their child between £1,000 to £5,000 for a deposit.
• Some parents are open to gifting up to £20,000.

• Parents give deposits primarily due to their child's financial situation and inability to afford a deposit independently.
• Some parents consider their own financial stability when helping without risking their future.

• Surprisingly, 69% of parents didn't research or seek advice on the implications of lending money for this purpose.
• Some banks may not accept a borrowed deposit, limiting deals available to first-time buyers borrowing from parents.

Gifted deposits are enhancing first-time buyers’ overall house-buying experience

Securing a deposit is only the start of the house-buying process. Still, for 30% of first-time buyers who received financial help from parents, it allowed them to afford a home in a better neighbourhood, or with more desirable features.

22% of first-time buyers say financial help from parents made the overall home-buying process much smoother and less stressful. While 11% say it helped them secure a better mortgage rate or terms, saving them money in the long run.

Most UK parents will gift their child £1,000 to £5,000 for a deposit

In a survey by Barratt Homes, UK parents were asked about their contribution towards their child's deposit.

The majority (34%) stated they would give between £1,000 to £5,000. Additionally, 26% indicated they would contribute up to £10,000, while 22% were open to gifting up to £20,000.

Why are parents gifting their children deposits?

In the UK, 29% of parents stated that they gave their child a deposit primarily because of their child's financial situation and inability to afford a house deposit independently. 

Additionally, 28% mentioned their own financial stability as a key factor, ensuring they could help without risking their own future.

Gifted deposits are enhancing first-time buyers’ overall house-buying experience

Securing a deposit is only the start of the house-buying process. Still, for 30% of first-time buyers who received financial help from parents, it allowed them to afford a home in a better neighbourhood, or with more desirable features.

22% of first-time buyers say financial help from parents made the overall home-buying process much smoother and less stressful. While 11% say it helped them secure a better mortgage rate or terms, saving them money in the long run.

Many parents are gifting deposits without seeking advice on the implications

Despite the trend of parents providing financial support to their children, it's surprising that 69% didn't research or seek advice on the implications of lending money for this purpose. This includes the possibility that some banks may not accept a borrowed deposit, limiting the deals available to first-time buyers borrowing from their parents.

6 questions to consider before lending your children a deposit

Terry Higgins, Group MD at The New Homes Group New Build Mortgage Services, teams up with Barratt Homes experts to highlight 7 important questions for parents lending money for their child’s deposit.

1. How do gifted deposits work?

“A gifted deposit is when a family member or friend gifts you some, or all, of your deposit with no expectations for it to be paid back – this is classed as a gift and not a loan.”

2. Who can gift a deposit for a mortgage?

“Each lender has its own set of guidelines regarding who can provide a gifted deposit, typically restricted to parents or close relatives like siblings or grandparents. However, some lenders may also accept contributions from family friends.

“A gifted deposit doesn't necessarily have to cover the entire deposit and can complement your own savings. Although, it’s essential that the giver agrees to relinquish any claim to the property.”

3. How will gifting a deposit affect my own financial situation?

"Apart from adding to your deposit, receiving a gift shouldn't change your financial situation, as it's freely given and not a loan."

4. Do I need to provide any documentation as the person gifting the deposit?

“A document commonly referred to as a 'gifted deposit declaration' or 'gifted deposit letter' is required. This document explicitly states that the funds are given as a gift with no expectation of property ownership or repayment. It must be signed and dated by the donor (the person giving the deposit) in the presence of a witness.

“Other requirements include:

• Proof of identification and the address of the donor 
• A recent bank statement from the donor showing how the gifted money was accrued

“It is important that this information is provided to your mortgage broker and conveyancer as early as possible in the buying process, as additional checks may need to be made and this will prevent any unnecessary delays.”

5. How big can gifted deposits be?

“Generally, there is no limit on the size of a gifted deposit.”

6. What other low-deposit options are there for first-time buyers?

“Schemes such as Skipton Building Society’s Track Record mortgage requires no deposit, and targets renters. To qualify, you must be a first-time buyer, over 21, have 12 months of on-time rent payments, and have a good credit score.

“Several lenders now offer 95% mortgages meaning you only need a 5% deposit. David Wilson Homes also offer a Deposit Unlock scheme that enables first-time buyers to purchase a property with only a 5% deposit. 

Other schemes, such as David Wilson homes’ Rent then Buy, also allow you to move into a new house whilst still only paying rent – this money then goes towards your deposit.”

Methodology:

We conducted a survey using OnePulse, targeting 500 parents across the UK. The survey aimed to explore the motivations and considerations driving parental decisions regarding financial contributions towards their child's deposit for a home.