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In recent years, first-time buyers have had to cope with rising property prices, higher mortgage rates, and stricter lending criteria.
So, it’s no surprise that new analysis by Savills has revealed that in 2024, just over half of all first-time buyers received financial help from their parents; the average amount loaned was £55,572.
Of course, as a parent or grandparent – or perhaps both – you’ll naturally want to help the younger members of your family to progress in life. Helping them buy their first home could be a wonderful way to achieve this.
While paying their house deposit may seem like an obvious way to support your children or grandchildren in realising their property ownership ambitions, it’s not the only choice and may not always be the best one.
Keep reading to learn about the potential drawbacks of paying your child or grandchild’s deposit and discover three alternative options for helping them buy their first home.
Paying your child or grandchild’s house deposit could have unintended consequences for you and them
Handing over the cash your child or grandchild needs to buy their first home may seem like a worthwhile way to share your wealth. It could help them:
- Avoid expensive rents, which are often higher than monthly mortgage repayments
- Secure a more favourable mortgage rate by paying a larger deposit
- Buy a property sooner than they could on their own
- Provide your loved one with long-term financial security.
However, it’s important to consider the potential downsides of providing funding in this way. Indeed, gifting a large lump sum as a house deposit could:
- Leave you with less cash for emergencies
- Negatively affect your retirement plans and long-term security
- Unintentionally undermine your child or grandchild’s independence
- Trigger an Inheritance Tax (IHT) charge if you die within seven years of giving the gift
- Result in mortgage complications (there may be more scrutiny, and you might need to provide documentation to prove the money is a gift, not a loan).
That’s not to say that gifting a deposit is “wrong”. However, it’s essential that you weigh up the pros and cons. You might also benefit from seeking financial advice.
A financial planner can use sophisticated cashflow modelling software to help you visualise how such a gift – and the alternative options outlined below – could affect your finances in the future. You can then make an informed decision about how to support your loved ones in the most tax-efficient way, without jeopardising your long-term financial wellbeing.
3 alternative ways to help young family members buy their first home
1. Act as a guarantor
A guarantor mortgage allows you to put up your savings or property as collateral for your child or grandchild’s loan. This could help them buy a home that they wouldn’t otherwise be able to afford – without you handing over a large amount of cash.
However, acting as a guarantor means that you become legally responsible for the debt if your child or grandchild defaults on their payments. If this happens, you could potentially lose your savings or have your house repossessed to cover the outstanding mortgage balance on your loved one’s home.
Additionally, your credit rating may be affected, which might make it harder for you to borrow money in the future.
Even if your child or grandchild keeps up with their mortgage repayments, any savings you used to secure the loan will typically be tied up for a fixed period or until the balance falls below a certain level.
As such, acting as a guarantor is a significant financial commitment, so it’s crucial to seek financial advice before offering this to your child or grandchild.
2. Take out a family offset mortgage
Family offset mortgages, otherwise known as parent-offset mortgages, link your savings account to your child or grandchild’s mortgage deal. As a result, they’ll only pay interest on the difference between the mortgage balance and the amount in your account.
Imagine that your child or grandchild takes out a mortgage of £200,000 and you place £50,000 in an offset savings account. The lender only charges interest on £150,000. As such, your loved one pays less interest overall, which could mean:
- Their monthly payments are lower
- They can pay off their mortgage more quickly
- They may be able to borrow more with the same affordability.
What’s more, your £50,000 in savings remains yours, and these funds will be released to you once the mortgage balance reaches a certain loan-to-value or after a specific time period. Alternatively, as your child becomes more financially independent, they might remortgage and no longer need your savings to offset the loan.
However, there are several risks to consider, including:
- Your borrowing ability might be reduced
- Your savings won’t usually earn any interest
- Your savings are likely to be locked away for a period of time, potentially many years
- If your child or grandchild defaults, the mortgage lender may keep some or all of your savings.
3. Use this little-known gifting rule to provide tax-efficient financial support
IHT is a tax your beneficiaries could face if the value of your estate exceeds certain thresholds when you die.
As mentioned previously, if you hand over a large sum of cash to cover your child or grandchild’s deposit, this may trigger an IHT charge if you die within seven years of giving the gift.
Instead, you could use the “gifts out of surplus income” IHT exemption to help your child cover their mortgage repayments. Theoretically, this could allow you to pass on an unlimited amount of money to your child or grandchild without paying IHT, provided that:
- Your gifts are made as regular payments rather than a one-off lump sum
- You can afford to give the gifts while also covering your normal outgoings
- The gifts come from income, not capital.
While this might not reduce the upfront expense of a deposit, it could be a valuable way to help your children manage the cost of buying a home over the longer term. Moreover, these ongoing gifts may reduce the value of your estate for IHT purposes. As a result, you could pass on more of your wealth to your children and grandchildren in the future.
Read more: Only 430 people used this valuable Inheritance Tax exemption this year – did you?
Get in touch
If you’d like help reviewing your finances to identify the best way of supporting your adult children or grandchildren to buy a home without jeopardising your plans, we’d love to hear from you.
To learn more, please email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
Think carefully before securing other debts against your home.
Approved by Best Practice IFA Group Ltd on 9/12/25