Advice on buying a home with the help of mum and dad

One of the biggest barriers to homeownership is saving a substantial amount for a deposit. While there are steps you can take to boost your savings, a failsafe solution is financing your home purchase through funding from family or loved ones - otherwise known as the “Bank of Mum and Dad”. This continues to remain a popular option for many would-be borrowers.
By Andrew Milnes
Published 11th Jul 2023, 03:00 BST

Many lenders are happy to accept gifted funds from family members, and in some cases offer flexibility to receive funding from extended family, including aunts and uncles, provided that there is a reasonable relationship between the parties involved.

Most importantly, by providing a significant boost to your deposit fund, you could unlock more favourable interest rates and loan to value ratios from your mortgage lender, resulting in lower monthly repayments.

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If you are planning on using the Bank of Mum and Dad to get on the property ladder, you should remember that lenders will stipulate that these funds have to be a gift and not a loan that needs to be paid back. It may even be the case that the lender asks the individual gifting the money to sign a gifted deposit letter, and may request an audit trail to see where that deposit has been.

Andrew Milnes Business Principal at the MOrtgage Advice Bureau BingleyAndrew Milnes Business Principal at the MOrtgage Advice Bureau Bingley
Andrew Milnes Business Principal at the MOrtgage Advice Bureau Bingley

The good news is that the Bank of Mum and Dad is not the only option out there. There are ample new, innovative products available for those looking to climb the property ladder, whether with the help of a gifted deposit, or for those who may not quite have enough deposit saved.

For example, Skipton Building Society offers a “track record” product that allows for 100 per cent lending for those previously renting a property, removing the need for a deposit altogether.

However, bear in mind that there are specific criteria that you must meet in order to be eligible - most importantly, you need a minimum record of 12 consecutive months proving you have met your rental payments on time.

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Some lenders allow you to borrow 100 per cent of the value of the property under the provision that you open a savings account. For instance, Barclays’ Family Springboard Mortgage allows borrowers the opportunity to get a loan for the full value of the property by lodging deposit funds from a family member into a savings account with the bank.

After successfully meeting mortgage payments for three years, a substantial portion of the deposit is then returned to the family member, while also paying them interest above the Bank of England rate.

Despite interest rates rising and the cost of living crisis, the property market is very much active, with plenty of opportunity for first time buyers and while it may not quite resemble the market of a few years’ prior, the Bank of Mum and Dad, along with innovative products, can help overcome challenges with affordability/deposit saving.

If you’re looking to apply for a mortgage with help from relatives or want to find out more about the potential options available to you, speak to a broker before going any further. They will help with the application process and assess all of the options available.

*Mortgage Advice Bureau, Bingley, tel:01274 568832

Related topics:Bank of EnglandBarclays