Getting on the property ladder would have remained a pipe dream for Hannah Gravett if it wasn’t for the jumbo £135,000 deposit that her parents, Alan and Amanda, gave her.
Thanks to their help, Gravett, 26, is now buying a £475,000 two-bedroom flat in Kingston upon Thames, southwest London.
Alan and Amanda gave her the money in December after selling the buy-to-let property they had owned since 2019, having decided they no longer wanted the hassle of being landlords in retirement.
“My rental contract was coming to an end in February, and that’s when we seriously started talking about it,” Gravett said. “They said the money was there for me, but there was no pressure to buy if I didn’t want to.”
Gravett, a journalist, had also saved £23,000 in a Lifetime Isa, which she opened inMarch 2021, giving her a total deposit of £158,000. These accounts let you save £4,000 a year and you get a 25 per cent government bonus when you use the money to buy a first home, or are over the age of 60.
“I’m very grateful to my parents. It’s so selfless of them — they could have used that money for their own retirement,” she said. “At this time of my life, I would never have been able to do it alone.”
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The Bank of Mum and Dad plays a critical role in helping first-time buyers to get on the property ladder. Gifts and loans from parents for housing deposits alone totalled £9.4 billion in 2023, according to the estate agency Savills — almost double the £5 billion given in 2019.
The average amount given is £58,000, according to the property website Zoopla, but a growing number of generous parents are handing over six or even seven-figure sums, experts say.
The rise of the jumbo deposit
Jumbo deposit gifts of £100,000 or more are on the rise. Some 110,325 homebuyers received at least £100,000 from a family member last year, according to the mortgage technology firm Twenty7tec, up 8 per cent from 102,546 buyers in 2023. The majority of these buyers (15 per cent) used their gifted deposit to buy a property worth £400,000 to £500,000, followed by 13 per cent who bought a home worth between £300,000 and £400,000, and 10 per cent for properties worth between £500,000 and £600,000.”
“Within certain price brackets, these large gifts are becoming the norm,” said Nathan Reilly from Twenty7tec.
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Harry Arnold from the mortgage broker Anderson Harris estimated that 40 to 50 per cent of the first-time buyers he deals with now have jumbo deposits, and this has increased significantly over the past year. “I’ve seen clients in the last six months who have had £800,000 or even £1 million deposits,” he said.
Inheritance tax (IHT) changes announced in the budget are driving the trend. Pensions will be counted as part of an estate for IHT purposes from April 2027. Families who don’t want to leave their loved ones with a hefty tax bill after they die are looking at ways to reduce the size of their estate, including gifting money while they are alive.
As long as parents live for seven years after making the gift, it will not be liable for IHT.
Baby boomers — those born between the end of the Second World War and the mid-1960s — are expected to pass more than £5 trillion down to younger generations over the next 30 years, according to the investment firm Aberdeen.
“Families are genuinely concerned about it,” Arnold said. “Many parents of borrowers are telling us that one of the main reasons they are gifting money is due to worries about IHT.”
Mega deposits not only allow buyers to take on smaller mortgages (and therefore have lower monthly repayments), they also unlock better rates because lenders consider them to be less risky.
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The average two-year fixed mortgage rate for buyers with a 10 per cent deposit is 5.54 per cent, compared with 4.83 per cent for those with a 40 per cent deposit. Repayments on a £250,000 loan with a 25-year term would be £1,541 and £1,437 respectively, saving those on the lower rate £1,248 a year.
Gravett’s jumbo deposit helped her to secure a two-year fixed rate at 4.34 per cent on a 40-year-term. Her monthly repayments will be £1,428. “I’m sensible with my money but sometimes I feel a bit guilty as I’ve had such an easy ride. I haven’t had to save or be frugal or anything,” she said. “I’ve seen friends go to extreme lengths just to scrape together a 5 or 10 per cent deposit. I don’t understand how anyone can buy without help.”
The risks of giving too generously
Parents who give away huge chunks of their wealth risk leaving themselves short in later life, experts warn. “It can completely derail retirement plans,” said Sarah Nesbitt from the financial advisory firm The Private Office. “They could be giving away money needed to fund their lifestyle or any care costs that might arise, and could even push back the date they can retire.”
There are other ways that parents can help adult children on to the property ladder. Joint borrower, sole proprietor mortgages allow up to four people to buy a property together, but only one person (the sole proprietor) owns it. Parents can list their income on the mortgage application to boost the amount that their child can borrow, but as they won’t go on the deeds they do not have to pay extra stamp duty. They are jointly liable for the debt, though, so if the mortgage doesn’t get paid, they will have to step in or their credit record could be affected.
Another option is a guarantor mortgage. This is where your savings or home is used as collateral on your child’s mortgage application. With Lloyds Bank, for example, a family member can put 10 per cent of the property price into a three-year fixed-term savings account as security. Again, you will be liable for mortgage repayments if your child doesn’t make them.
