Rising house prices, tight lending criteria and high deposit requirements can make the goal of homeownership unattainable for many first-time buyers. Many families are responding by stepping in to help through mechanisms such as gifted deposits, financial guarantees and specialist mortgage products designed for intergenerational support. This article explores the main ways a first-time home buyer can purchase a property with family assistance, considering the legal and financial implications involved, and how these alternatives can be combined with government schemes to maximise buying power.
The Role of Family Support in First-Time Home Purchases
The so-called Bank of Mum and Dad continues to be one of the largest “enders” in the UK housing market. Today, family assistance does not have to mean handing over a large lump sum either. There are now structured products, legal agreements and even government-recognised models that enable relatives to offer help within certain parameters and with some protections in place. For a first-time home buyer, family support can mean the difference between saving for several more years and buying now. The key is to understand the options and ensure that everyone involved is protected legally and financially.
Gifted Deposits
The most straightforward way families can help is by gifting all or part of the deposit. Lenders are comfortable with this approach, provided that there is clear evidence that the funds are a genuine gift and not a loan.
How it works: A parent or family member transfers a sum of money to the first-time home buyer, who uses it toward their deposit. The lender will ask for a formal gifted deposit letter confirming the funds are non-repayable and that the giver has no ownership claim over the property. Proof of where the money came from will also be required for the purposes of anti-money-laundering checks.
Legal protection: If the first-time home buyer is purchasing with a partner, the person gifting the deposit may wish to protect their contribution with a deed of trust. This legal document outlines how the property’s value would be divided if the couple were to separate and the property sold.
Tax considerations: No tax is payable at the time of the gift, but inheritance tax could apply if the donor passes away within seven years of giving the money. It is worth obtaining professional advice to understand how this might affect estate planning.
Family-Assisted Mortgages
Cash is not the only option available. A family assisted mortgage lets relatives support a home purchase without giving money directly. These products use a family member’s property, savings or income as part of the application, helping the first-time home buyer meet affordability requirements or access better rates.
Guarantor mortgages: A guarantor mortgage allows a family member to use their own savings or property as security for the buyer’s first mortgage. This arrangement can enable borrowing up to 100% of the property’s value, removing the need for a large deposit. If the buyer falls behind on payments, the guarantor becomes liable for the debt; in some cases, their savings could be used to cover shortfalls.
Joint Borrower, Sole Proprietor (JBSP) mortgages: With a JBSP mortgage, a parent or relative is added to the mortgage to boost affordability but does not appear on the property’s title deeds. This means the first-time home buyer is the sole legal owner, avoiding the additional Stamp Duty surcharge that applies to buyers who already own property. This is a flexible form of family assisted mortgage, allowing parents to help their children qualify for larger loans without taking on ownership themselves.
Family offset mortgages: A family offset mortgage links the buyer’s mortgage account to a family member’s savings account. The relative’s savings effectively reduce the interest charged on the loan, even though the funds remain untouched. The downside is that those savings will not earn interest while they are being used to offset the mortgage balance.
For some, the family-assisted approach strikes the ideal balance, helping the buyer reduce costs without permanently giving away cash.
Combining Family Help with Government Schemes
A first-time home buyer can also combine family support with one or more government initiatives designed to make homeownership more accessible.
Lifetime ISA (LISA) (H3): This savings account allows you to save up to £4,000 per year toward your first property, with the government adding a 25% bonus (up to £1,000 annually). You can use your LISA savings alongside a gifted deposit or family assisted mortgage to increase your total deposit.
First Homes Scheme (H3): Available in England, this scheme offers first-time buyers a discount of 30%-50% on new-build properties, provided they meet local eligibility criteria. To qualify, buyers must be able to secure a first mortgage for at least 50% of the home’s value, which could be easier with family financial backing.
Important Legal and Financial Considerations
Get independent advice: Both the buyer and any family contributors should seek independent financial and legal advice. Family arrangements can have long-term consequences, from tax implications to ownership disputes. Cleary documented agreements can help prevent misunderstandings.
Formalise everything: If family funds are provided, put the terms in writing. A solicitor can draft a legally binding agreement. Even among close relatives, formal documentation protects all parties and provides clarity for lenders.
Understand the risks: While family assisted mortgages and joint arrangements can be beneficial, transparency and professional guidance are crucial before proceeding because such arrangements also carry risks. For example:
- If the buyer misses payments, the guarantor could lose money or see their home placed at risk.
- If savings are offset, the family member’s funds are locked away for the term of the agreement.
- If relationships change, unwritten expectations about repayment or ownership can cause tension.
The Role of Lenders
Each lender has its own policies for assessing applications involving family help. When applying, ensure that the lender is fully aware of the nature of the family support. Misrepresenting a loan as a gift can lead to legal complications.
Long-Term Planning and Next Steps
For families, supporting a first-time home buyer is not just a financial decision but a legacy choice, helping the next generation attain stability. However, this support should not jeopardise the financial security of those providing it. Parents or relatives should assess how much they can comfortably afford to give or guarantee. They might also want to explore whether downsizing, using a savings product or partial equity release wcould provide funds in a more sustainable way. Buyers should also focus on affordability, ensuring that they can manage their monthly mortgage payments independently if family involvement ends after the initial purchase phase.
Conclusion
Family assistance has become a key aspect of homeownership for the first-time home buyer. Whether through gifted deposits, guarantor or offset mortgages, or joint borrower arrangements, family support can make buying a first property achievable years earlier than if relying on one’s savings alone.
However, it is important to approach these arrangements with the same level of professionalism as any financial contract. Formal agreements, legal advice and a clear understanding of the risks involved are essential to protecting both parties.
FAQs
Q. What is the best way for a family to help a first-time home buyer?
A. The most common method is a gifted deposit, where a family member contributes a part or the whole of the buyer’s deposit with no expectation of repayment. Other options include becoming party to guarantor, joint borrower sole proprietor or family offset mortgages.
Q. What is a family assisted mortgage?
A. A family assisted mortgage allows a relative to support the buyer without handing over cash; for example, by acting as a guarantor or linking savings to reduce the loan’s interest.
Q. Do parents pay tax on a gifted deposit?
A. No immediate tax is due, but if the last surviving parent dies within seven years, the gift may count toward inheritance tax calculations.
Q. Can family support be used with a government scheme?
A. Yes, family contributions can be combined with schemes such as the Lifetime ISA or First Homes Scheme to increase affordability.
Q. What are the risks of being a guarantor?
A. If the first-time home buyer defaults, the guarantor is legally responsible for payments and could lose savings or put their own property at risk.
Q. What should families formalise when helping with a property purchase?
A. All agreements, whether gifts, loans or guarantees, should be documented through a solicitor to prevent disputes or confusion later.
Q. Can a family offset mortgage save money?
A. Yes, by linking a family member’s savings to the mortgage balance, the buyer pays less interest, and the savings do not earn interest during that period.
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