Parents want to help their offspring while they can see their joy
As the cost-of-living continues to bite and house prices rise ever further, many first-time buyers are increasingly turning to loved ones to fund their deposit on a property, new research suggests.
One in seven are relying or planning to rely on a gifted deposit, often from family members or friends, according to the latest research from Mortgage Advice Bureau. There is no expectation of repayment, and the gift giver has no stake or claim on a property.
“Saving for a deposit remains one of the biggest obstacles for first-time buyers,” said Danny Belton (pictured left), Mortgage Advice Bureau’s head of lending. “House prices are at a level where substantial deposits are required, with the average house price in England around £310,000, meaning a minimum deposit of £15,500 is needed.
“Higher loan-to-value ratios often stretch affordability limits, making larger deposits critical to reduce borrowing requirements. This has been compounded by the Bank of England’s higher base rate, which has pushed up the stress-testing thresholds for lenders. Many borrowers now find they qualify for less, necessitating larger deposits to bridge the gap.”
He added: “For those renting, the situation is even more challenging, as rising rental costs leave little room to save. As a result, reliance on family support through gifted deposits has become a common solution for many first-time buyers and is likely to remain so until broader affordability issues are addressed.”
Belton urges a more robust partnership between the government and the industry to develop and implement meaningful solutions to support increased homeownership. He suggests policies which address supply shortages, promote affordable housing developments, and ensure regulatory frameworks encourage innovation.
“On the borrower side, there’s a clear opportunity to improve education,” said Belton. “Many buyers may not fully understand how gifted deposits work or the conditions associated with them. More accessible information and proactive guidance from brokers and lenders could bridge this knowledge gap.”
Why are some gifting deposits?
Kim Balasubramaniam (pictured centre), co-director and co-founder of mortgage and financial brokers, Versed, also identifies a growing trend.
“Life is unpredictable, and the traditional mindset of saving extensively to leave behind an inheritance seems to be shifting,” she said. “More people want to witness the joy their loved ones experience from their generosity during their own lifetime. Additionally, considerations like inheritance tax have certainly influenced this change in approach.”
Balasubramaniam considers housing affordability to be one of the most pressing issues currently.
“Both the government and the housing industry need to work together,” she said. “The government should focus on providing affordable homes by implementing planning reforms, offering incentives to developers, and increasing funding for public housing. Concurrently, the housing industry must introduce innovative construction and financial solutions to produce affordable housing on a large scale.
“It's crucial for brokers to keep pace with the varying criteria that different lenders apply to gifted deposits. This knowledge not only ensures compliance and due diligence on our part, but it also empowers us to guide borrowers effectively. For many first-time buyers, the concept of gifted deposits might seem straightforward—simply receiving financial support from family members. However, the reality is often more intricate, with long-term implications that must be considered.”
Borrowers may not fully grasp the necessary paperwork or the importance of a formal declaration verifying that the gift is not a loan, Balasubramaniam believes.
“It's essential for borrowers to understand that lenders may also examine the donor’s financial situation to confirm the authenticity of the gift,” she said. “By equipping both brokers and borrowers with the essential knowledge they need, we can facilitate a more seamless process for all.”
Read more: First-time buyer mortgage gap has widened over last decade
What proportion of people support a family member financially?
Family Building Society, meanwhile, reports that 40% of its members surveyed have had to help a family member financially in the last six months.
“There are too few homes available compared with demand,” said its director of marketing, Alistair Nimmo (pictured right). “Until we solve supply, high house prices will remain an issue for many. A joined up approach involving reform of the planning system, and interaction between various local and national government departments so we have an unified approach to the housing crisis would help.
“Many properties that would be suitable for growing families and are too big or unsuitable for older owners are not coming on to the market because the current owners rightly resent writing HM Revenue & Customs a large cheque for the Stamp Duty they will incur by moving to something more suitable. So, remove stamp duty for last time buyers. If you solve the last time mover problem, you go some way to solving the first-time buyer problem.”
Family Building Society’s research has found that only 8% of those gifting a deposit took financial advice and only 14% took legal advice.
“The ramifications for those gifting and receiving help are huge if it goes wrong,” Nimmo warned. “That is why it is important that the subject is discussed fully within the family and with legal and financial experts. Tax and inheritance planning is essential before entering any large financial transaction to avoid future nasty shocks.”
Michelle Lawson, mortgage adviser and director of Lawson Financial believes that gifted deposit trend is as regional as affordability.
“The south east seems to have problems due to higher property prices, therefore a higher deposit is required,” she explained. “However, this is from the same wages that have now pretty much levelled up nationally.”
Lawson believes urges donors of gifted deposits to take appropriate advice regarding tax issues.
“There are also some great mortgage products that don’t need family members to physically part with cash and charges can be made over their property,” she noted. “Affordability is the key issue, however. The stress-testing has proven to be effective at mitigating the risks of higher interest rates, as we have seen this play out in recent months and years.”
