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Could you gift your child a house deposit?

A third of parents aren't planning to help their child financially

The ‘Bank of Mum and Dad’ has long bolstered the deposits of first-time buyers, but new data shows that funds may be running low.

A survey by Royal London found that a third of parents and grandparents (34%) say they have not or do not intend to offer financial support to help their offspring buy their first home.

There are also indications that the amount that parents are able to lend might not even make a significant difference, with first-time buyers in some regions needing tens of thousands of pounds for a house deposit.

 


Is the Bank of Mum and Dad drying up?

New research conducted by Royal London found that many parents and grandparents do not intend to offer financial support to their child or grandchild to help them on to the property ladder.

The poll of 2,100 people also concluded that there were significant differences across the board on how much parents could lend – and indeed whether they expected to be paid back.

Here, we take a look at the key findings of the research and explain the alternative ways you could help your child buy their first home.

How much do parents give their children?

Even first-time buyers fortunate enough to be beneficiaries of the Bank of Mum and Dad may find that their gift or loan doesn’t move them much closer to home ownership.

The latest ONS data suggests the average deposit needed for a first-time buyer home is £49,639 – and with the highest percentage (37%) of parents or grandparents only able to contribute up to £10,000.

The average house price across the UK is currently £226,367 according to the ONS. This means buyers would require £22,600 for a 10% deposit, plus a further £2,027 in stamp duty.

But in cities, the price is much higher, with the London regional average hitting £484,000 in September. A gift of £10,000, while generous, wouldn’t even cover the stamp duty of £14,200 on a home at this price, let along the £48,400 deposit.

 

Where do parents help first-time buyers most?

Parents and grandparents of would-be buyers in London are more likely to have either helped or be planning to help their offspring than elsewhere in the UK.

This perhaps reflects the significant price inflation in the capital when compared to other regions – with some buyers needing six-figure deposits, it might not be a surprise that London’s millennials need more help than those elsewhere in the UK.

But this correlation doesn’t necessarily work across the board.

While the research shows parents in the East Midlands are the least likely to offer financial support, the region actually has a higher average property price than the North East, North West, Wales or Scotland.

Do parents expect their money back?

While it might be a long-running joke that the Bank of Mum and Dad offers the lowest interest rates and has the most defaults, it seems there’s some truth in this.

Only 15% of parents and grandparents who have or intend to financially support their offspring said their money would be given as a loan – with more than half (57%) saying it would be given as a gift.

Bear in mind that your child will need to notify their bank if you expect to be repaid – and the banks may see this as an additional expense when deciding how much to lend.

Alternative ways to help your child buy a home

While gifting cash towards a deposit is common, it’s not the only way to help your child on to the property ladder. Here are some of your other options:

  • Use your savings as security: Rather than gifting cash, you could use your savings to secure your child’s loan. Lenders will usually require you to lock your savings up for a set amount of time, so you might miss out of better interest rates and the opportunity to switch. The Family Springboard mortgage offered by Barclays is an example of this type of account.
  • Use your home as security: Alternatively, you could use your equity as security on your child’s mortgage – though remember your home is at risk if your child defaults. The Family Deposit mortgage offered by Nationwide is an example of this kind of account.

If either of the above options might appeal to you, check out our full guide on guarantor mortgages to learn more about the pros and cons.

Alternatively, you could consider:

  • Buying a home together: Getting a joint mortgage will help you retain control of your money, but it will mean you’re financially linked to your child – and you could face a higher rate of stamp duty, as you’ll own two homes.
  • Helping your child save for a deposit: If you’re taking a much longer-term approach, there are ways you could help your child save for a deposit. Once your child reaches the age of 18, they can open a lifetime Isa, from which the government will pay a 25% bonus on any savings when your child buys a house worth up to £450,000.
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