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Published: 31/01/2023
Bank of mum and dad

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Article written by Kellands Hale, our preferred independent advice firm.

This article is not intended to be financial advice to any individual. The views expressed are those of the author and does not endorse the content.

Rising house prices and soaring inflation have forced many hopeful first-time buyers to put their dreams on ice.

According to YouGov, the average house price is now 65 times greater than that of 1970, while wages are only 36 times higher. It is a statistic that doesn’t make for pretty reading, and one that suggests that saving towards your first home can do little to alleviate affordability pressures.

Considering the challenges first-time buyers face, you might aim to help your adult children, or adult grandchildren onto the property ladder. So, below we have listed three things you should know.

How much does it cost to be a first time buyer?

Becoming a first time buyer is more than just saving for a deposit. You'll need to afford monthly repayments and keep an eye on house prices. Our recent news story Stretched affordability – Calculating the ever-increasing costs of homeownership explains. 

1. There are more ways to contribute than simply paying a deposit

For most people, the help you provide will come in the form of a lump sum that makes up a portion of your child’s deposit.

While this is absolutely a viable option should you choose it, gifting an amount larger than £3,000 within one tax year can have some Inheritance Tax (IHT) complications if you were to pass away fewer than seven years after the gift was made. This financial gift is known as a “potentially exempt transfer” (PET).

If you passed away within the year, the amount could count as part of your estate and may be taxed at the standard rate of IHT. After that, the percentage of IHT applied is tapered according to the number of years you live if the value of the gift exceeds the nil-rate band. Once seven years have passed, the transfer is usually exempt from IHT.

This is not to say that providing a deposit is an unwise choice – but it is important to be aware of the potential tax implications it brings.

You could be wondering: “if I don’t contribute towards a deposit, how can I help?”

Fortunately, there are alternative arrangements you can make that might help the next generation buy their dream home, particularly when it comes to their mortgage.

Some mortgage options you could consider as a parent or grandparent include:

  • Signing on as a guarantor, meaning you agree to take on your child’s debts if they become unable to repay
  • Taking out a “family springboard mortgage”, also known as a “family mortgage”, involving you, the helper, placing funds in a secure account for five years, and having them returned with interest if the mortgage holder (your child) proves able to repay the debt
  • Taking out a joint mortgage, which could be helpful if your child is buying as a single person rather than with a partner or spouse.

Fortunately, if you are uncomfortable about gifting a large lump sum, exploring mortgage options could be a viable alternative for you and your loved ones. We can help you find a mortgage agreement that suits the whole family.

2. Stamp Duty Land Tax

It is a common misconception that first-time buyers don’t pay any Stamp Duty Land Tax (SDLT) on their first property. In fact, the threshold for a SDLT-free purchase is simply higher than it is for most other buyers.

Until recently, first-time buyers would pay SDLT on properties valued above £300,000. Fortunately, in September’s mini-Budget, the rate at which first-time buyers will pay SDLT was raised to £425,000 with immediate effect.

So, if your children are searching for properties valued below £425,000, they could happily avoid paying any SDLT.

If you have budgeted to help pay an SDLT bill, these funds could be reallocated towards funding a larger deposit, paying other fees, or helping pay the mortgage. This new threshold will only remain in place until 2025, so it could be wise to make the most of this tax cut while it lasts.

This rerouting of funds could be especially helpful in light of recent interest rate rises. According to the Bank of England, mortgage approvals have fallen to their lowest levels since the start of the pandemic – so supplementing your child’s deposit might give them the boost they need while interest rates remain high.

Ultimately, the financial viability of helping a loved one buy a property depends on your unique circumstances. Working with your Kellands financial planner can help you contribute with confidence.

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3. Assessing your own affordability criteria is essential

Although the prospect of boosting your children or grandchildren onto the property ladder is exciting, it is crucial to use your head, not your heart, when gifting large amounts of money.

You may have planned for this milestone years in advance, but indeed, the cost of living crisis has caused many individuals to reassess their financial plans.

For instance, if you are planning to draw money from an ISA or liquidate other investments to provide the funds, their values might have taken a downturn in the past 12 months.

Plus, with the BoE’s continuous base rate rises from December 2021, many mortgage rates have followed suit. So, it could be your children require more help from the Bank of Mum and Dad than they thought.

All this to say: reviewing your financial circumstances with an expert before gifting a lump sum for a property could be highly constructive. We can help you determine whether offering the planned amount is affordable, both this year and with regards to your long-term financial plan.

You could even visit your Kellands financial planner as a family, and discuss the best outcome for everyone involved before your loved ones start searching for their first home.

Get in touch

For guidance on lending or gifting money to the next generation, mortgages, or any other financial matter, email us at, or call 0161 929 8838.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it. Buy-to-let (pure) and commercial mortgages are not regulated by the FCA. Think carefully before securing other debts against your home.

Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.

Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.

© Kellands (Hale) Limited is authorised and regulated by the Financial Conduct Authority. FCA Firm Reference No. 193498


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