Bank of Mum and Dad FAQs

Find answers to some of the most common questions asked on the Bank of Mum and Dad.

Helping loved ones on the property ladder – what are the options available and things to consider?

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.
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. 
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
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. 

Read our 'Guide to Legal and Financial Considerations' that highlight the financial considerations and legal implications that families should be aware of when helping loved ones onto the property ladder.

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

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. 

Read our 'Guide to Legal and Financial Considerations' that highlight the financial considerations and legal implications that families should be aware of when helping loved ones onto the property ladder.

First time buyers: the options available for my family

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, our Bank of Mum and Dad Conversation guide can help with this, 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

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.

Read our 'Guide to Legal and Financial Considerations' that highlight the financial considerations and legal implications that families should be aware of when helping loved ones onto the property ladder.

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. 

Read our 'Bank of Mum and Dad Conversation guide' that lists key questions and topics that we recommend should be considered when first approaching the conversation of financial support.

If personal circumstances were to change

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. 

Read our 'Guide to Legal and Financial Considerations' that highlight the financial considerations and legal implications that families should be aware of when helping loved ones onto the property ladder.

Treating siblings 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. 

Read our ' How to run the Bank of Mum and Dad guide' that covers topics should as this and important things to consider when helping loved ones to buy a home. 
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?

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. 

Read our 'Guide to Legal and Financial Considerations' that provides more information on the different ways to provide financial assistance.

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. 

Read our 'Guide to Legal and Financial Considerations' that highlight the financial considerations and legal implications that families should be aware of when helping loved ones onto the property ladder.

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! 

Read our 'Guide to Legal and Financial Considerations' that highlight the financial considerations and legal implications that families should be aware of when helping loved ones onto the property ladder.

Alternatives to gifting / loaning the money

Yes this is possible. 

Some lenders 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. 

We offer something similar called Joint Borrower Sole Proprietor (JBSP) arrangements. This arrangement allows family members to support each other with affordability when applying for a mortgage. 
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. 
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. 

How to run the Bank of Mum and Dad

Our definitive guide on 'How to run the Bank of Mum and Dad' shows how it works and important things to consider

Legal and Financial consideration guide

Useful guidance on the financial considerations and legal implications that families should be aware of when helping loved ones to buy a home.

Conversation guide

Talking about money with family can be difficult. Our simple guide can help both parents and adult children tackle that tricky conversation of financial support.