Watching your children try to buy their first home these days can be incredibly disheartening.
After all, sky-high deposits and strict lending criteria make the property market feel entirely out of reach for young buyers. It’s no secret that the bank of mum and dad has become a vital lifeline for the next generation, but simply handing over a lump sum of cash isn’t the only option available—and it’s not always financially viable for every family, either.
There are actually several clever, modern lending setups and legal workarounds that let you offer a crucial leg-up without draining your own retirement nest egg. Navigating these options carefully is the best way to give your kids the boost they need without putting your own financial security in jeopardy.
It’s natural for parents to want (or need) to help their kids.
House prices have been climbing faster than wages for years, while rents have risen so much that many young adults can’t save anywhere near enough for a deposit. On top of that, mortgage lenders have got stricter about who they’ll lend to and how much. The result is that buying a first home without help has become close to impossible for many people, particularly in pricier parts of the country.
According to figures from Barclays, almost a third of first-time buyers now rely on financial support from family to get their foot on the ladder. For most, that means tapping into what’s often called the Bank of Mum and Dad. The challenge for parents is working out how to help in a way that doesn’t put their own finances at risk, while also making the biggest possible difference to their child’s prospects.
Pay into a Lifetime ISA.
If your child is between 18 and 39, opening a Lifetime Isa can be one of the smartest ways to build a deposit. The big draw is that the Government adds a 25% bonus on top of whatever your child saves, up to a maximum of £1,000 a year. So if they pay in the full £4,000 annual allowance, they’ll end up with £5,000 in their Isa at the end of the year. Free money is hard to argue with.
Richard Dana from mortgage platform Tembo has pointed out that if a parent supports their child with the full annual contribution from age 18 to 28, that would add £10,000 in Government bonuses alone, plus whatever the money has earned in interest or investment gains. The Lifetime ISA can be held as cash or invested in stocks and shares, and all growth is completely tax-free. The Government has announced plans to replace the Lifetime ISA in 2028 with a new product aimed at first-time buyers, but anyone already saving in one will be able to keep going.
Give a lump sum as a gift.
If you’ve got savings sitting in the bank and your child is ready to buy now, handing over a lump sum is the most straightforward way to help. A bigger deposit unlocks better mortgage deals, since lenders reserve their best interest rates for buyers with more skin in the game. It also makes the monthly mortgage repayments more manageable, which can be life-changing for a young couple just starting out.
The big thing to think about is the impact on your own finances. Don’t give away more than you can comfortably spare. There are also inheritance tax implications to be aware of. Tom Evans from Purplebricks explained that this type of gift counts as a Potentially Exempt Transfer, which means if you die within seven years of giving the money, some or all of it might still be counted as part of your estate for tax purposes. Mortgage lenders will also want written confirmation that the money is a gift and doesn’t need repaying.
Offer an interest-free loan instead.
If giving the money outright feels too risky, an interest-free loan is a sensible middle ground. Your child gets the same boost to their deposit, but the money eventually comes back to you. This protects your financial position while still giving your child the leg-up they need.
The catch is that you need to prove to HMRC that the money was always intended to be repaid; otherwise, it can be treated as a gift and fall under those inheritance tax rules. The best way to handle this is to draw up a proper written agreement laying out the terms, even between family members. Many mortgage lenders are happy to accept loan arrangements, particularly if the repayment can be deferred until the property is sold or remortgaged later down the line, so your child isn’t squeezed by monthly repayments to you on top of their mortgage.
Remortgage your own home to release funds.
If you don’t have spare cash lying around, but you’ve built up considerable equity in your own property, remortgaging to release some of that value can be an option. You’re essentially borrowing more against your house and passing some of it on to your child. This can work well if your current mortgage rate is low, and you’ve got plenty of equity to play with.
The downside is that you’re taking on extra debt later in life, which can be a real risk. Your monthly mortgage payments will go up, and lenders are generally less willing to lend to people approaching retirement age. Alexandra Loydon from St James’s Place has stressed that anyone going down this route needs to be confident they can comfortably manage the repayments and the set-up costs involved. It’s worth working out the maths very carefully before signing anything.
Consider equity release if you’re over 55.
For homeowners aged 55 or over, equity release offers a way to unlock tax-free cash from your home without having to move out. The most common form is called a lifetime mortgage, which is essentially a loan secured against your property. You can either pay the interest monthly or let it roll up and be added to the loan, with the whole lot repaid when you eventually die or move into long-term care.
The big upside is that you can help your child financially while continuing to live in your own home. The big downside is that compounding interest can chip away at the value of your estate very quickly, leaving much less for inheritance. Equity release is best suited to families who want to provide immediate support rather than safeguard future inheritance. It can also affect your entitlement to means-tested benefits, so proper financial advice is absolutely essential before going ahead.
Downsize your own home.
Another way to free up cash is to sell your current home and move somewhere smaller. If the kids have left, and you’re rattling around in a four-bedroom house, moving to a two-bedroom flat or bungalow could release a chunk of equity that you can pass on. Downsizing can give you a smaller, easier-to-manage home, while also creating funds to help your loved ones.
The catch is that moving is genuinely expensive. Once you factor in stamp duty, estate agent fees, solicitor fees, removal costs and possibly some renovation work on your new place, the actual amount you walk away with can be quite a bit less than you’d hoped. You also need to make sure the new home suits your needs for years to come. Downsizing can be brilliant in the right circumstances, but it’s not a quick decision and the sums need to be done carefully.
Join the mortgage with a JBSP arrangement.
If gifts, loans, equity release and downsizing all feel out of reach, there’s another option called a Joint Borrower, Sole Proprietor mortgage, or JBSP for short. Lenders like NatWest and Skipton offer these specifically for parents who want to help their children buy. Up to four people can be named on the mortgage, with the parents’ income being counted alongside the child’s so they can borrow much more.
Phil Spencer, the well-known property expert, has explained that the child remains the sole legal owner of the property, but because the parents’ income is included on the mortgage, the lender can offer a much larger loan than they could to the child on their own. The risk is that you’re legally responsible for the mortgage payments if your child can’t keep up, which is a serious commitment. It’s also worth treating a JBSP as a temporary arrangement, with the aim of removing the parent from the mortgage once the child can afford to manage the repayments alone.
Things to think about before deciding
Whichever option you go for, the most important rule is not to give away or commit to more than you can genuinely afford. Helping your child onto the ladder is wonderful, but not if it leaves you struggling in retirement or unable to cope with unexpected costs further down the line. Your own financial security matters just as much as theirs, and most children would rather see their parents financially comfortable than receive help that comes at too high a cost.
It’s also worth involving your child in the conversation properly. They need to understand what’s being offered, what’s expected in return, and how it fits into their broader financial situation. Speaking to an independent financial adviser before making any big decisions, especially around inheritance tax, equity release or remortgaging, is one of the best things you can do. The right structure can save thousands of pounds in tax and avoid family disputes later, particularly if you have more than one child and want to keep things fair between them.
