Family support helps first-time buyers onto the property ladder

If you’ve been dreaming of buying your first home but find it difficult to save enough cash, don’t worry; you’re definitely not alone. It’s becoming increasingly challenging to get on the property ladder, so it’s no surprise that many homebuyers are turning to their families and the so-called ‘Bank of Mum and Dad’ for essential financial help.

This term refers to financial assistance from parents or grandparents to help their children purchase a home. This valuable family support is often given as a gifted deposit, but it can also be provided as an informal loan, regular financial backing, or by acting as a formal guarantor on a mortgage.

In some cases, parents utilise their own hard-earned savings or even their property as collateral through options like springboard mortgages. This effectively enables their children to borrow significantly more than they could independently, making homeownership a sudden reality.

Exploring different mortgage options

Gifted deposits are funds provided to a homebuyer, often by a generous family member, to help them purchase a house. They can either contribute to the overall mortgage deposit or cover the full deposit amount.

The person giving the money does not acquire any ownership or legal connection to the house. If your parents cannot assist with a cash deposit, they could act as guarantors instead, meaning that if you are unable to make the mortgage payments, your parents will agree to cover the cost.

However, it is important to remember that your parents would be providing extra security, which could be at risk if you default on the mortgage. You might also consider a joint mortgage with your parents, a loan taken out by two or more people to finance a property.

Both parties will share responsibility for the monthly repayments and jointly own the house, which means you could borrow a larger amount than you could alone.

Utilising family savings effectively

Family offset mortgages happen when parents use their savings to help their children or grandchildren get onto the property ladder. You will need to set up a linked savings account that includes your parents’ financial contribution along with your own, and the balances in this linked account are then used to offset the balance of your mortgage.

It is a great way to significantly lower your mortgage’s interest, as your payments will be based on the reduced balance, while the parents’ savings stay in their name and can be returned to them later.

You might also consider a joint borrower sole proprietor mortgage, which allows multiple people to make payments on a property, but only one person is named as the owner on the property deeds.

It is very helpful for first-time buyers because lenders will consider each applicant’s income together when deciding how much they can lend. As a result, the homebuyer will probably be able to borrow a larger amount of money and will also get helpful support with the monthly repayments.

Weighing up the pros and cons

If you’re fortunate enough to receive support from family when purchasing a home, there are several potential advantages, including improved chances of mortgage approval. Having a larger deposit boosts your loan-to-value ratio, making you more attractive to lenders by reducing the amount you need to borrow and indicating lower risk.

A lower ratio often means you qualify for more competitive mortgage deals, resulting in lower monthly repayments, and you might be able to afford homes in more desirable areas. While family support can be incredibly helpful, there are also some downsides to be aware of, starting with tricky family conversations. Discussing how much help is available or dividing support fairly between siblings can sometimes cause tension.

If the support is a loan rather than a gift, some lenders may treat it as a financial commitment, reducing the amount you are allowed to borrow. Furthermore, large gifts may affect Inheritance Tax if the donor dies within seven years, so seeking professional legal advice is always essential.

Need help understanding your options?

If you’re planning to use family support to buy your first home and need advice on the right mortgage options, we are here to help. Contact IMC Financial Services by calling 020 8392 6111 or emailing us at info@imcfs.co.uk to discuss your future home with our team today.