Bank of Mum and Dad: what parents need to know about gifted deposits and loans

Why family support is becoming more common

For many first-time buyers, saving a deposit can feel out of reach. As house prices and living costs rise, more families are stepping in to help—often referred to as the “Bank of Mum and Dad”.

For parents, the key point is that support is rarely just one decision. It can affect:

• how the deposit is treated during the mortgage application
• the buyer’s affordability assessment
• legal ownership arrangements if the purchase is shared
• your own financial security and, in some cases, potential tax outcomes

This guide focuses on the practical issues parents typically need to consider when helping a first-time buyer with a deposit.

Gift or loan: the first decision

When family money is used towards a deposit, it’s usually structured as either a gift or a loan. The difference matters because it can change what lenders expect and how the arrangement is documented.

Deposits given as a gift

A gifted deposit is commonly accepted in principle, but lenders generally want clarity that the money is genuinely non-repayable.

In practice, this often means a gifted deposit letter. The letter should confirm that the funds are provided with no expectation of repayment and that there are no conditions attached that could create an ongoing obligation.

Inheritance tax (IHT) considerations can also come into play for larger gifts or where the parent’s wider estate is significant. IHT treatment depends on individual circumstances and timing, so it’s sensible to consider this as part of broader financial planning rather than treating it as a purely mortgage-related step.

Deposits provided as a loan

A loan arrangement can give parents more control and a clearer expectation that the money will be repaid.

However, loaned deposits may not be straightforward for mortgage purposes. Lenders can have different approaches to whether they will accept repayable funds as part of the deposit, and how the repayment terms are evidenced.

Loans can also create potential tax considerations, particularly if interest is charged. Even where interest is not charged, it’s still worth thinking through the paperwork and how the arrangement will be understood by the parties involved.

How family support can affect the mortgage application

Mortgage lenders assess affordability and risk based on the borrower’s circumstances. Family support can influence the application in two main ways: the source and nature of the deposit, and the borrower’s ongoing outgoings.

If it’s a gift

With a gifted deposit, the main focus is usually whether the lender is satisfied that the funds are non-repayable. Clear documentation helps reduce the risk of delays or additional queries.

If it’s a loan

With a loan, the borrower’s repayments (if applicable) can increase their outgoings. Lenders may view this as increasing risk, depending on the structure of the loan and the borrower’s overall financial picture.

Because lender requirements can vary, the way the arrangement is set up—and how it is evidenced—can be just as important as the amount being contributed.

Protecting the money if the purchase is shared

Family support can become more complex when the first-time buyer is purchasing with a partner or friend. If relationships change, questions about who owns what can quickly become contentious.

To reduce risk, parents often consider legal documentation that records how the contribution is reflected in ownership.

Declarations of trust (and deeds of trust)

A declaration of trust (sometimes referred to as a deed of trust) can set out how financial contributions translate into ownership shares.

This can help ensure that a parent’s contribution is properly recognised, rather than being treated as part of the other person’s share by default.

Living together agreements

Where the purchase is not between spouses, a living together agreement can be used to record expectations and contributions.

While it doesn’t replace legal advice, it can support clarity around what each party is putting in and what should happen if the relationship changes.

Financial security for parents: think beyond the deposit

Before any money changes hands, it’s worth stepping back and considering affordability—not only for the short term, but for the longer term too.

Parents may want to consider:

• whether the gift or loan affects day-to-day finances
• whether you still have adequate savings for emergencies
• how the support fits with retirement plans
• whether the arrangement could create pressure if circumstances change

For many families, the most effective approach is to treat the decision as part of wider financial planning rather than a one-off transaction.

Other ways to help beyond a simple gift

Not every family situation supports a straightforward cash gift or repayable loan. Depending on circumstances, there may be other approaches to discuss.

Equity as security

Some parents may be able to use equity in their own property as additional security. This can increase the buyer’s borrowing capacity, but it also introduces risk for the parent’s property and requires careful consideration.

Family offset arrangements

In some cases, savings can be used to offset the mortgage balance for a defined period. The exact structure depends on lender product terms.

Guarantor mortgages

A guarantor mortgage involves a parent taking on responsibility for part—or potentially all—of the mortgage debt if the borrower cannot meet payments.

This can help the buyer qualify, but it is a significant commitment. It’s important to understand the potential consequences for the guarantor’s finances.

Joint mortgages

Another option is for the parent and child to take out the mortgage together. This may increase borrowing capacity, but it can also create ownership and tax implications, particularly if the property is later sold.

What parents and first-time buyers should align on

Family support works best when both sides have a shared understanding of the arrangement.

Key areas to align include:

• whether the money is intended as a gift or a loan
• how the deposit source will be evidenced for mortgage purposes
• what legal documentation will be used if the purchase is shared
• how the arrangement affects the parent’s wider finances
• what happens if the relationship changes or the property is sold

Why professional guidance can matter

Helping a child buy a home can be emotionally rewarding, but it can also have long-term implications. Depending on the structure, different professionals may need to be involved, such as mortgage advisers, solicitors, and tax specialists.

The goal is to ensure the arrangement is properly documented and understood by everyone involved, reducing the likelihood of delays or misunderstandings during the mortgage process.

Key takeaway

The “Bank of Mum and Dad” trend is growing because family support can make homeownership possible for more first-time buyers. The best outcomes usually come from treating the support as a structured plan—choosing gift vs loan carefully, documenting the deposit properly, protecting shared ownership with suitable legal arrangements, and considering the impact on parents’ long-term financial security.