Parents and other relatives can help a first-time buyer in several ways, most directly with the deposit. Each way affects your child’s mortgage, your own finances and, sometimes, inheritance tax differently. This page sets out the options and the questions to settle first.
Giving the deposit
The simplest help is a gift. Your child’s lender will usually want to know where the money came from and will ask you to confirm in writing that it’s a gift, that you don’t expect it back and that you won’t own a share of the home. Your child will also need proof of where the deposit came from (the ‘source of funds’), so keep a record of the transfer.
Gifts and inheritance tax
A gift isn’t taxed when you make it. It only matters for inheritance tax if you die within 7 years, and then only if your estate plus gifts made in those 7 years is worth more than the tax-free threshold (£325,000 for most people). If tax is due on a gift made 3 to 7 years before death, taper relief can reduce it.
Some gifts never count:
| Exemption | Amount |
|---|---|
| Annual exemption (can carry one unused year forward) | £3,000 a year |
| Wedding or civil partnership gift to your child | £5,000 |
| Wedding gift to a grandchild or great-grandchild | £2,500 |
| Wedding gift to anyone else | £1,000 |
| Small gifts (not combined with another exemption for the same person) | Up to £250 per person a year |
| Regular gifts out of your income that don’t reduce your standard of living | No set limit |
| Gifts to your husband, wife or civil partner (if you’re legally married or in a civil partnership and they live in the UK permanently) | No limit |
Two parents can each use their own annual exemption, so £12,000 can go to a child this tax year without counting if both also carry forward last year’s unused exemption. More in our inheritance tax guide.
Lending the deposit
You can lend the money instead, so it stays yours. Your child’s lender will treat a loan as a debt they have to repay, which can reduce how much they can borrow, and some lenders won’t accept a borrowed deposit at all, so ask before you agree it. If you lend, write down the amount and when and how it’s repaid, and consider a declaration of trust recording your interest in the home, drawn up by a solicitor.
Guarantor and joint mortgages
- Guarantor mortgage. You promise the lender you’ll pay if your child can’t, sometimes backed by your savings or your own home. It can help your child borrow more, but you’re liable if they fall behind, and the lender will usually need you to get independent legal advice first.
- Joint mortgage. You borrow alongside your child, so your income counts too. If you’re named as an owner as well, you own part of a second home, which can mean the stamp duty higher rates on the purchase, capital gains tax on your share when it’s sold, and your child losing first-time buyer stamp duty relief (every buyer has to be a first-time buyer). Some lenders offer mortgages where you’re on the loan but not the deeds, to avoid this.
- Savings-backed mortgages. Some lenders let family members place savings with them as security for a child’s larger mortgage, returned after a set period if the payments are kept up. Your money is at risk if they aren’t.
Other ways to help
You could help with the costs besides the deposit, such as conveyancing, a survey or furniture; pay into your child’s Lifetime ISA for them (the bonus is paid on what goes in, up to the yearly limit); or let them live with you rent-free while they save.
Before you help
- Can you afford it without harming your own retirement or security?
- Is it a gift or a loan, and would you want it back if the home is sold?
- If your child is buying with a partner, should your money be protected if they split up? See buying with a partner and joint tenants vs tenants in common.
- Are you being fair to your other children?
Independent legal advice, for you and your child separately, is worth paying for with any arrangement bigger than a straightforward gift.
Related guides
- First-time buyers guide: costs, deposits, schemes and stamp duty relief in one place
- Buying a home with a partner: joint mortgages, unequal deposits and splitting up
- How to save for a house deposit: where to keep a deposit and how long saving takes
- Joint tenants vs tenants in common: the two ways to co-own a home
Your home may be repossessed if you do not keep up repayments on your mortgage. PocketWise provides information and guidance, not financial advice. Seek independent mortgage advice before making decisions about borrowing.