Making a decision to gift or lend money to your child for deposit

Navigating the journey to homeownership can be a challenging adventure, particularly for young adults stepping onto the property ladder for the first time.  For parents, watching a child prepare to take this significant step is a proud moment, and many are eager to offer support.  In this blog, we cover practical ways parents can empower their children’s dreams of owning their first home.  From gifting funds to formalising loans, Connect Me Mortgages provides insight into how these acts of assistance can make all the difference.

One straightforward way parents can assist is through gifting.  If a child is falling short of the deposit needed to secure a home, parents might step in to gift the necessary amount.  This approach is often viewed as an advance on an inheritance.  The essence of a gift is that it’s given without the expectation of repayment—it’s a straightforward transfer of funds to help a loved one purchase their first home.  To formalise this, a gifting declaration is signed by the gifting party, clarifying the nature of the gift for both the recipients and any involved financial institutions.

This method requires clear communication and understanding between parents and their children, ensuring both parties are comfortable with the arrangement and its implications for the family’s financial future.

For those considering a gift as part of the house deposit, we’ve got you covered with a standard gifting declaration, recognised by all major banks.  To ensure it fits your unique situation, we’ll review its applicability together.  Once confirmed, we’ll provide you with this declaration to share with your generous donor, making the process straightforward and compliant with banking requirements.

A “Deed of Acknowledgement of Debt” presents another option for parental support in the property journey.  Unlike a gift, this option involves a formal loan from parents to their child, a common choice when the child is purchasing a home with a partner.  This arrangement allows parents to lend the needed funds for a deposit, with the understanding these will be repaid should the property be sold.  This ensures the parents’ contribution is safeguarded, especially in situations where the child and their partner may part ways.

For those considering this method, a formal deed outlines the terms of this loan, making clear the agreement between the borrower and the lender—usually, the parent.  This document is crucial for detailing the loan’s specifics and ensuring both parties are protected.

Before proceeding with this option, we advise discussing it with us at Connect Me Mortgages.  We’ll assess its suitability for your unique circumstances.  If it’s a viable option, we can provide you with a template deed to facilitate this arrangement.  However, it’s wise for both the borrower and the lender to seek independent legal advice before committing to such an agreement.  This ensures clarity and understanding for both parties involved in this significant financial decision.

The journey to homeownership is filled with significant decisions and financial commitments, but for first home buyers who have the backing of their parents, the journey can be less daunting.  Whether through a generous gift or a structured loan via a “Deed of Acknowledgement of Debt”, parents have options to facilitate their child’s entry into the property market.  Connect Me Mortgages is here to guide families through these choices, ensuring the financial support provided aligns with everyone’s best interests.  By partnering with our team, families can navigate this important life event with confidence, clarity, and the joy of making a shared dream come true.

For parents that don’t have cash funds to gift or lend, however own a property and still want to assist their child, contact Connect Me Mortgages today to discuss additional options.

Lending criteria are always subject to change.  The information contained in this blog is not tailored mortgage advice; please contact a Connect Me Mortgages Adviser to get tailored mortgage advice for your own financial position.