Gifting a Deposit Through Remortgaging
The most straightforward approach is to remortgage your home to raise a lump sum and gift it to your child as a deposit. This is a gifted deposit, and lenders will need a signed letter confirming the money is a genuine gift with no expectation of repayment and no stake in the property.
The advantage is simplicity: your child applies for their own mortgage in the normal way, and the gift simply helps them meet the deposit requirement. Most lenders accept gifted deposits from immediate family members without any issues.
How Much Would You Need to Raise?
The amount depends on the property your child wants to buy and how much deposit they need. A 10% deposit on a £250,000 home would be £25,000, while a 15% deposit would be £37,500. Larger deposits help your child access better mortgage rates, potentially saving them thousands over the life of their loan.
You'll need enough equity in your own home to raise this amount while keeping your LTV within your lender's limits. Remember that increasing your mortgage also increases your monthly repayments, so you need to be comfortable with the higher costs for years to come.
Alternatives to Gifting a Deposit
If remortgaging for a large lump sum isn't feasible, there are other ways to help:
- Guarantor mortgages — you guarantee your child's mortgage without providing cash upfront, though your home may be used as security
- Joint mortgages — you buy together, though this has stamp duty and tax implications
- Family offset mortgages — your savings are linked to your child's mortgage to reduce their interest payments
- Helping with monthly costs — contributing to your child's mortgage repayments or other expenses so they can save a deposit themselves
Tax and Legal Considerations
A gifted deposit is treated as a potentially exempt transfer for inheritance tax (IHT) purposes. If you survive seven years after making the gift, it falls outside your estate entirely. If you pass away within seven years, taper relief may reduce any IHT liability. The current IHT nil-rate band is £325,000 per person.
If you're lending the money rather than gifting it, this complicates your child's mortgage application because lenders treat it as a debt your child must repay. Most lenders strongly prefer genuine gifts with no strings attached. It's worth taking legal and tax advice before making large financial gifts to family members.
Important: Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice. The actual rate available will depend on your circumstances. Think carefully before securing other debts against your home.