Navigating buying a home with the Bank of Mum and Dad

As the cost of living rises and property prices increase, getting on the property ladder often feels impossible for first time buyers. Many are turning to family for the financial support they need. Enter: ‘the Bank of Mum and Dad‘. This term refers to parents who are able to give their children financial support to help them buy a home.

If you’re finding it challenging to save for a deposit in this economy, you may be seriously considering asking your parents for financial assistance, or they may have already offered their support. In this blog, we’re exploring what using the Bank of Mum and Dad to buy a home entails, so you can decide whether it’s a viable option for you.

Financial support from the Bank of Mum and Dad

According to The Guardian, the rise of the Bank of Mum and Dad can be traced to the 1980s, but the trend of relying on parental support for property purchases accelerated after the 2008 financial crash. This year, Savills predicts that 51% of all first time buyer home purchases will be funded, either partially or in full, by the Bank of Mum and Dad, with family contributions totalling approximately £9.3 billion.

Getting support from the Bank of Mum and Dad has its advantages. Aside from reducing the strain on your finances, it may increase your budget and widen the pool of properties you can afford, or it could help you buy a home in your ideal area rather than compromising on a location.

There are various ways your parents can help you buy a Shared Ownership home, depending on the support they are able or want to provide. Some of the most common ways parents offer financial contributions include:

Gifting the deposit

Many parents choose to gift the deposit, whether in full or in part, helping their child overcome one of the biggest obstacles to homeownership: the upfront sum needed to buy a home. Legally, there is no limit to how much parents can gift their child. However, there may be tax implications, such as potentially being subject to Inheritance Tax further down the line.

Contributing to fees

You’ll incur other costs on top of the deposit when purchasing a property, mostly in the form of legal fees. You’ll have to pay a solicitor for the work they undertake on your behalf, such as disbursements, searches and land registry. Some solicitors also charge supplementary fees for new-builds and if a buying scheme like Shared Ownership is used to purchase the home.

Additionally, your mortgage lender may charge a product fee that can be paid upfront or added to your mortgage. Your bank may also charge a transfer fee for paying your deposit and other costs on completion day. However, this varies from bank to bank, so be sure to check if you’ll be subject to transfer fees.

Loaning money

Loaning money that you’ll pay back later is another way the Bank of Mum and Dad can provide financial support, giving you the freedom to put the money towards what you choose, whether that’s mortgage and legal fees, or to cover the costs of decorating and furnishing your home.  

Just remember that the majority of the time, if you’d like to use the money towards your deposit, it must be a gift – not a loan. There mustn’t be an agreement to pay back the money to your parents or family member, and in most cases, you will need to state this in writing too.

Discussing your investment with family

From finances and legal processes to alternative schemes you may be considering pursuing, there are several topics related to the home-buying process that you may want to discuss with your parents. They may have opinions about the type of housing scheme you’d like to use when buying, or the type of property you should spend it on, especially if they’re supporting you financially. Below, we’ve put together some considerations and tips to help you discuss your investment.

Talking about money

For some, talking about money with family can be challenging, daunting or awkward, but it doesn’t have to be. If you want to discuss getting financial support from your parents to help you buy a home, there are some steps you can take to facilitate a productive conversation.

First things first, ask to have a discussion about your home-buying aspirations. This will open up the conversation about where you’re at in your journey and how they can support you. It’s important to clearly communicate what you’re asking for, so be specific about the help you’re seeking from them. But prepare yourself for all eventualities. Gifting or lending you money may not be something your parents can help with. If you’re struggling to find the funds you need to buy a home, speaking to an independent financial advisor could help you gain clarity on your finances and create a path forward.

Conversations about buying schemes

You may already be aware of the various buying schemes that can help you become a homeowner, but discussing your options with family could help you decide which one is most suited to your circumstances, as it may help your parents figure out how they can best support you financially.

Shared Ownership is a government-backed scheme designed to help aspiring homebuyers onto the property ladder. It allows you to take a step towards homeownership by purchasing a share in your home, typically between 10% and 75%, and paying discounted rent to a housing association on the rest. Using money from the Bank of Mum and Dad to buy a Shared Ownership home doesn’t mean your parents will own part of the property; you’ll be the shared owner alongside your housing association.

Our Shared Ownership hub has several resources about the scheme, including myth-busting and related costs, which could be useful when discussing it with your parents. We also have lots of information about the other schemes available that can help you onto the property ladder, such as Deposit Unlock, London Living Rent and Rent to Buy. They can make buying a home more affordable through initiatives like smaller deposits or subsidised rent to help you save towards a deposit. Visit our buying scheme hub to learn more about the various initiatives that you may be eligible for.

Calculating your affordability with financial support from family

Once you’ve determined if or how much the Bank of Mum and Dad can financially contribute to your property purchase, you can start calculating your budget and how much you may be able to borrow for a mortgage. We have two affordability calculators to help you do this – a Shared Ownership mortgage affordability calculator and a general mortgage affordability calculator. The figures they provide are indicative only and can be used as a guide to help you with your home search. To determine the exact amount you may be able to borrow, we suggest speaking to a specialist mortgage broker.

At Share to Buy, we make your choice easier with a selection of new-build homes across England, available through alternative homeownership schemes such as Shared Ownership. Get your home-buying journey underway using our property portal.