More in this section

Bank of Mum and Dad – how it really works

It's now quite common for young people, and particularly first time buyers, to receive a contribution from parents or other family members to help with a house purchase. With the need to provide ever increasing deposits, the Bank of Mum and Dad is now busier than ever.  

The Bank of Mum and Dad is now the UK’s sixth largest lender but how does it really work? It’s essential that parents and their children know the rules for both their own financial protection and peace of mind.

Our research and findings
We asked the London School of Economics to look into how families deal with parental help when buying a property. Their report, "The Bank of Mum and Dad: How it really works", distills the experience of both those receiving the help and those who provide it. This has led us to produce the definitive guide in "How to run the Bank of Mum and Dad".  

The difficult conversation when discussing financial support
So how do families first approach this often difficult conversation?

  • NEW!  Our Conversation guide highlights important questions and topics that should be considered when first approaching the conversation of financial assistance.
  • Our frequently asked questions and answers also cover many topics that commonly arise.

  • Preparation and planning
    When helping loved ones onto the property ladder there are many financial considerations and legal implications that you should be aware of.

    • NEW! A Financial guide – a simple guide to help understand the implications of financial help.
    • NEW! A Legal guide – a simple guide to the legalities of the financial support given.

    Research report - The Bank of Mum
    and Dad:  How it really works
      

    The Bank Of Mum and Dad How It Really Works                         

    How to run the Bank of
    Mum and Dad 

    How to run The Bank of Mum and Dad                   

    The Bank of Mum and Dad -
    A Conversation guide

    BOMAD_A_Conversation_Guide

     Find out more and read our report  Find out more and read our guide  Find out more and read our guide
         

    The Bank of Mum and Dad -
    A Financial guide
    BOMAD_A_Financial_Guide

    The Bank of Mum and Dad -
    A Legal guide
    BOMAD_A_Legal_Guide
               

    Read our latest blog
                 

     Find out more and read our guide  Find out more and read our guide
                  

     

    Share your story with us

    The attitudes and perceptions around family help
    vary immensely for both older and younger generations.
    This is clearly a topic of conversation which can divide opinion. What are your experiences?


    We’d really like to hear from you – so why not share your thoughts and views on this subject?
    FBTW

    Feedback from our customers: 

    “Happy to do it, provided they do what they can too.”

    “Good that we could help. Sad that we had to do so.” 

    “It’s essential to help them provided it doesn’t impact on our own finances”

    “If they can't afford it by themselves then something is very wrong with our economic system.”

     

    Frequently asked questions and answers

    Family members: Helping my child on the property ladder – the options available and things to consider

    I’d love to help my children / grandchildren get a foot on the property ladder and help with the deposit. Where do I start?  Is there any advice / information I can get on this subject before I begin the process?

    I’d love to help my children but I also have my own future goals to consider, such as funding my retirement. I’m worried how I’d manage financially in the future, what advice can I get, what are my options?

    I’m not in a position to give my children / grandchildren any money. Are there any other ways I can help without handing over cash?

    Should I seek financial or legal advice before I start the process?

    Is it essential that I document the transaction and have a repayment schedule set up?


    Protecting my money / gift / loan

    I’m think of drawing up a contract in advance with my child and their partner, can you advise best how to do this?


    First time buyers: the options available for my family

    I’m currently looking to buy a property but need some financial help. Before I approach my family on this matter, which I can imagine will be a difficult conversation, can you give me more information about the different ways they can contribute and help me?


    The involvement of my child’s partners parents

    My child’s partner's parents want to contribute as well, so I’d rather we all put in the same, with several parties involved what is the best approach to this?

    What if my child’s partner's parents suddenly decide they want their money back, what protection (if any) can be put in place?


    If personal circumstances were to change

    I’m happy to help my child and his partner, but I’m concerned what will happen if their circumstances change, for example if their relationship breaks down. What can I do to protect the money that I’ve given to my child? Should I draw up a contract?


    Treating siblings fairly

    One of my children needs more help than the other. I want to help but also want to be fair to my other child, what can I do to ensure they are both treated fairly?

    I want to treat both my children equally, but one of them is a lot younger so won’t move out for least another 10 years. I’m expecting one will need more financial help in the future than the other due to property price inflation, how can I plan for this?  What are the best ways to help both children?


    Gift or loan?

    I don’t know whether to give the money as a loan or gift?  What is the difference?  

    I’m thinking of giving my child a loan, and feel it's best to set up an agreement about how and when it'll need to be repaid. I need help with this, how I should go about structuring the loan and repayments?  

    I’d like to give the money to my child and their partner as a gift, is it important to ensure they have acknowledged that there will be no repayment?


    Alternatives to gifting / loaning the money

    Can I act as a guarantor or co-borrower to support my child’s mortgage?

    Can I take out a joint mortgage with my child even though I will not be living in the property? How would this work for tax reasons? Would the ownership / deeds be their name or both of our names?

    Can I invest my savings without risking any of my capital, to help with my child get a better deal on their mortgage?



    Family members: Helping my child on the property ladder – the options available and things to consider

    I’d love to help my children / grandchildren get a foot on the property ladder and help with the deposit. Where do I start? Is there any advice / information I can get on this subject before I begin the process?

    As well as the Government Help to Buy Scheme, there are a number of lenders, ourselves included, who offer particular schemes to help first time buyers. Our scheme is called the Family Mortgage. Launched in 2014, it allows family members to use their savings and / or equity in their home as security against the mortgage – the key point is that it remains the property of the person providing the help. As we offer our own unique Family Mortgage, we do not take part in the Government Help to Buy Scheme.

    You should also talk to your financial adviser and solicitor who would explain more about the various things you ought to consider before simply handing over cash, more of which we discuss below.

     

    I’d love to help my children but I also have my own future goals to consider, such as funding my retirement. I’m worried how I’d manage financially in the future, what advice can I get, what are my options?

    Not every parent will want to or is capable of providing financial help to their children. But for those that are able to help, it is a balancing act between seeing your children settled in their own home while keeping one eye on the horizon, particularly if you are not one of the lucky few who will benefit from a final salary pension. First and foremost if you haven’t already done so, speak to your financial adviser and ask for a health check of your current retirement plans. How much do you think you will want to live on in say 15 or 20 years time? When it comes to downsizing to release some of the equity you may have built up over the years, think carefully on what your next step will be and where you think you would be able to move to. 

    Your Financial Adviser or a Certified Financial Planner can help you with creating a schedule for you if you want to plan it out carefully. You will have to pay a fee but you could also ask yourself, “What is the cost of not doing so?” if you have to unwind your assistance to pay for an unexpected event.

     

     

    I’m not in a position to give my children / grandchildren any money. Are there any other ways I can help without handing over cash?

    Those seeking to buy their first property will still need a minimum of a 5% deposit.  If they can raise that amount, you could help by using some of the equity in your own home as security. This is how our own Family Mortgage works. It allows us to offer lower interest rates than would normally be the case for a 95% loan to value mortgage. You can find more information on our Family Mortgage here

     

    Should I seek financial or legal advice before I start the process?

    It might seem a bit counter intuitive to seek legal advice when all you want to do is see your children settled into their own home, or help them make the next step when families expand. They are your children, right? And you trust them? But there really is no substitute for seeking unbiased and detached advice from a professional. A solicitor or financial adviser will have heard all the horror stories before and can quickly point out some of the potential pitfalls and some of the areas that you need to consider. They will be able to ensure both you and your offspring fully understand what is being undertaken and whether help is a gift or loan, as well as the possible inheritance tax implications, for example.

     

    Is it essential that I document the transaction and have a repayment schedule set up?

    If you are definite that the money that you have provided is indeed a loan and that you want a payment schedule in place, then you absolutely must have this agreed beforehand and crucially, in writing. Who knows what may happen in the future. Over the course of time the memory of what was agreed may fade somewhat. You may find yourself with an expected need to have that money for unforeseen reasons and having the arrangement documented makes the conversation with your offspring a little less awkward. It also makes it easier to answer questions you may get asked by HRMC regarding gifts or loans you may have previously made. This is important if you intend to gift money as this has implications for future Inheritance Tax liabilities. There are strict limits to the amount of money you give as a gift to your successors – those who will be the beneficiaries of your estate.

    A significant sum, such as £60,000 would incur significant tax liabilities if you die within the next seven years so there is yet another reason why all financial transactions are documented and that you speak to a financial professional beforehand if you are considering a gift.

     

    Protecting my money / gift / loan

    I’m thinking of drawing up a contract in advance with my child and their partner in order to protect my loan.  Can you advise best how to do this?

    In short, speak to your solicitor and your financial adviser – they are best placed to help from a legal perspective and to make you aware of your current financial situation and goals.

     

    First time buyers: the options available for my family

    I’m currently looking to buy a property but need some financial help. Before I approach my family on this matter, which I can imagine will be a difficult conversation, can you give me more information about the different ways they can contribute and help me?

    Let’s face it, we are British and we don’t like to talk about money, particularly with family. We know that many of those seeking help are very aware of their parents’ potential future financial needs and the last thing they want to do is be a drain on their resources. Once you get over the difficult bit of broaching the subject in the first place, you should be clear on whether you expect this as a loan or a gift. Only you will be able to know if your parents have the resources to gift money or would expect the money back at some stage for their own needs. We recognise that some families may be asset rich but income poor. In other words, they may be mortgage free and with reasonable pensions but may not have much cash available to simply hand over as a gift or loan. We recognise that problem which is why our Family Mortgage allows families to use their equity in their home as part of the security against the mortgage loan. 

     

    The involvement of my child’s partners parents

    My child’s partners parents want to contribute as well, so I’d rather we all put in the same, with several parties involved what is the best approach to this?

    It can be complicated enough when only one family is involved. When it is two, it is therefore doubly complicated. For a start, it is unlikely that two sets of parents’ financial circumstances will be same. While equality of help is admirable, fairness in help is equally important. If one set of parents’ contribution is financially lower but it is what they can reasonably afford, then that may be considered fair. 

    What if my child’s partner's parents suddenly decide they want their money back, what protection (if any) can be put in place?

    That all depends on the original agreement that was drawn up. If no agreement exists then that is a very awkward conversation indeed. You will need to work this through amicably and understand the reasons why the money is needed. It may be a sudden and unexpected change in their financial circumstances, it may be a medical reason, or whatever, but ultimately the reason why they need the money back is irrelevant. That is why it is so important that these arrangements are documented and that all parties fully understand the implications of an unexpected request to have the loan repaid.

     

    If personal circumstances were to change

    I’m happy to help my child and their partner, but I’m concerned what will happen if their circumstances change, for example if their relationship breaks down. What can I do to protect the money that I’ve given to my child? Should I draw up a contract?

    We call this the ‘beardy biker’ syndrome.

    Your daughter arrives home one day and says she want to set up home with this nice man. Enter Eric the thrash metal junkie with a penchant for Harley Davidsons and a beard that hasn’t seen a razor since the first hot flush of puberty. Or Soap. Tricky. On one hand she seems genuinely happy and you’ve always said that you would help with her to get a first foot on the property ladder. But you can’t help but wonder if this relationship is going to last and if that helping hand you are about to donate will be recycled in a couple of years into a new set of wheels when Eric and most of your deposit disappears in a cloud of exhaust smoke.
    If you have any doubt, and actually even when you don’t, then you should always document any transaction. And if your doubts are more than nagging then have a formal agreement drawn up such as a Declaration of Trust between your daughter and Eric. Declarations of Trust can be made up in many ways, but essentially they all do the same thing and that is to clarify between the couple the help that has been received from either family and what this translates to into absolute or percentage terms of the ownership of the property, for example. It is yet another reason for getting professional legal advice. 

     

    Treating siblings fairly

    One of my children needs more help than the other. I want to help but also want to be fair to my other child, what can I do to ensure they are both treated fairly?

    Being fair is recognition of individual circumstances. One sibling may not need or indeed want the help. Sometimes as a parent you have to think on a broad horizon. One child may need financial help now, another maybe later for different reasons and not necessarily for a property purchase. This is why some parents reflect on what their children need when they draw up their Wills so ultimately on their passing so all help that has been previously given is reflected in the final allocation of their estate.


    I want to treat both my children equally, but one of them is a lot younger so won’t move out for least another 10 years. I’m expecting one will need more financial help in the future than the other due to property price inflation, how can I plan for this?  What are the best ways to help both children?

    Obviously parents want to treat their children fairly, but no one knows what will happen to house prices in the future – there are some of us who still remember 15% interest rates and the term ‘negative equity’. Equally, you don’t know what your own financial circumstances will be in 10 years. Will you be retired and have enough pension to live on for your lifestyle choices and be able to help? All you can do in situations like that is to think what is the current problem that you are trying to solve. If you can help in the future, fine, but if you can’t then you can’t. This needs to be explained to the younger sibling and it’s why families need to talk about this.

     

    Gift or loan?

    I don’t know whether to give the money as a loan or gift?  What is the difference?  

    Simple. If it is a gift you are not expecting to get the money back. So that there is no confusion or awkward conversations in the future this should be formally documented. Your solicitor will help you prepare a formal ‘Deed of Gift’ which sets out the position. If it is a loan you have a choice to expect it to be repaid or you can write it off formally. Many parents make allowances when loans are not repaid in their lifetime by deducting this amount in their offspring’s inheritance.


    I’m thinking of giving my child a loan, and feel it is best to set up an agreement about how and when it will need to be repaid. I need help with this, how I should go about structuring the loan and repayments? 

    First of all talk to your child and explain why you want the help to be a loan. Then look at their financial situation to ensure what you are asking them to repay is reasonable and not be a burden on top of the mortgage and other outgoings. Do you want these repayments to be made monthly, yearly or as and when they can afford it? Also ask yourself if after a certain period of time you would be prepared to write this loan off if their circumstances change or you feel that they have shown enough commitment to the loan by making regular payments to you. Some parents term this help as a loan purely as a demonstration of commitment to making payments and write it off after a couple of years. But if you do write it off, make it clear to them this is what you are doing. This is another reason for documenting the history of the arrangement.

    I’d like to give the money to my child and their partner as a gift, is it important to ensure they have acknowledged that there will be no repayment? 

    Make it very clear that this is the case, but before you do ensure that you take appropriate Inheritance Tax advice. You may also want to speak to your solicitor to draw up a Deed of Gift to ensure that the arrangement is crystal clear – and don’t expect it back!

     

    Alternatives to gifting / loaning the money

    Can I act as a guarantor or co-borrower to support my child’s mortgage?

    Yes this is possible. Some lenders including ourselves offer ‘Guarantor’ mortgages. This can help in the assessment of mortgage affordability as it takes into account the guarantor’s income too. Bear in mind that if you want to support your child’s mortgage application in this way, then your own existing mortgage or credit commitments will need to be taken into consideration when assessing affordability.


    Can I take out a joint mortgage with my child even though I will not be living in the property? How would this work for tax reasons? Would the ownership/deeds be in their name or both of our names?

    Yes you can take out a joint mortgage with your child, and yes, you will be named on the deeds as a joint owner. But there are serious Stamp Duty Land Tax (SDLT) implications in doing this. As you would be owning two properties an additional 3% SDLT surcharge applies, resulting in a total SDLT bill of £10,000 versus £0 for a first time buyer, or £2,500 if your son previously owned a property.  


    Can I invest my savings without risking any of my capital to help with my child get a better deal on their mortgage?

    Our Family Mortgage allows you to do just that. It has been designed in such a way that family members can deposit some of their savings with us which acts as security. The savings remain the property of the person giving the help, earns interest and would only be used if the property has to be sold in the event of defaulting on the mortgage if there is a shortfall. The savings can also be used to offset the mortgage which reduces the monthly mortgage payment.

              

    ↑ Back to top

     

Family Building Society
Ebbisham House
30 Church Street
Epsom
Surrey KT17 4NL
Follow Us