The Bank of Mum and Dad: Helping the Next Generation Get on the Property Ladder

For decades, homeownership has been considered one of the key milestones of financial independence. However, skyrocketing house prices, stricter mortgage lending criteria, and stagnating wage growth have made it increasingly difficult for young people to save for a property deposit. Enter the “Bank of Mum and Dad” (BoMaD), an informal but significant force in the housing market. Parents and grandparents are stepping in like never before to help their children and grandchildren secure a foothold on the property ladder.

The affordability gap has never been more daunting. According to a 2024 report by Halifax, the average house price in the UK has surged to £286,000, while the Office for National Statistics reports that the average wage for 22- to 29-year-olds remains just under £30,000. The average first-time buyer now needs a deposit of £64,000—a figure that can take decades to save given the current financial climate.

Add to this the soaring cost of living, which makes it difficult for young buyers to save, and it’s easy to see why many are increasingly leaning on family support. The Bank of Mum and Dad has become one of the country’s largest “lenders,” contributing billions of pounds each year to help their loved ones move into their first homes.

The Bank of Mum and Dad often provides financial support in one of three ways:
1. Gifting a Lump Sum: For many families, gifting money toward the deposit is the most common way to assist. This could be from personal savings, downsized family assets, or inheritance planning.
2. Loaning Funds: In some cases, parents or grandparents loan money to their children for the deposit. This approach is often structured as an informal agreement, although it’s wise to draft a formal loan agreement to avoid potential conflicts down the line.
3. Acting as a Guarantor: Some parents choose to act as guarantors on their children’s mortgage. This means they provide financial backing, helping lenders approve the loan even if the young buyer does not meet all the affordability criteria.

Recent data from Legal & General found that the Bank of Mum and Dad funded 49% of first-time property purchases in 2023, with contributions totaling more than £8.5 billion. On average, parents or grandparents contributed around £22,000 per transaction, which can represent a significant proportion of a property deposit, particularly outside high-cost areas like London and the South East.

Interestingly, BoMaD’s influence isn’t limited to the younger generation. Families are increasingly assisting older first-time buyers in their mid-thirties or even forties, many of whom still struggle to save large deposits, especially if they’re raising their own families.

For young buyers, family financial support can be life-changing:
• Faster Entry into Homeownership: A parental contribution helps buyers avoid years of renting while they save for a deposit, reducing their exposure to rising rent prices.
• Access to Better Mortgage Deals: A larger deposit means a better loan-to-value ratio, which can unlock lower interest rates and reduce overall borrowing costs.
• Increased Financial Security: Homeownership offers security that renting cannot—something that’s particularly important in an age of unpredictable housing markets and economic uncertainty.

However, it’s not just the younger generation that benefits. For parents and grandparents, helping family members purchase a property can:
• Be an effective way to pass down wealth during their lifetime.
• Provide peace of mind, knowing their loved ones have more stable housing.
• Potentially reduce inheritance tax liabilities if the funds are considered a lifetime gift under HMRC rules.

While the Bank of Mum and Dad can make a huge difference, it’s important for parents or grandparents to carefully consider their own finances before giving away large sums. Here are some points to keep in mind:
1. Protecting Your Financial Future: If the money is coming from savings, ensure you have enough left to maintain your lifestyle, fund your retirement, and cover unexpected expenses.
2. Gift or Loan?: Decide whether the money will be a gift or a loan. If it’s a loan, formalise the agreement to avoid misunderstandings in the future.
3. Tax Implications: If you’re gifting money, familiarize yourself with inheritance tax rules in the UK. Gifts made less than seven years prior to the giver’s death could be subject to inheritance tax.
4. Impact on Other Children or Grandchildren: To prevent potential family conflicts, be transparent about your intentions and ensure your support doesn’t unintentionally create feelings of inequity among siblings or other family members.

If a direct financial gift isn’t feasible, there are other ways to support your children or grandchildren:
• Guarantee Their Loan: Some lenders allow parents to act as guarantors for their children, reducing the need for a large deposit.
• Joint Ownership: You could co-buy a property with your child and share ownership until they can fully refinance.
• Equity Release: If you’re a homeowner, you may be able to release equity from your property to raise funds for your family.

The Bank of Mum and Dad has become an indispensable part of the modern housing market. With property prices continuing to rise and wages struggling to keep up, family contributions can give young buyers the financial boost they need to secure a home of their own.

However, it’s important to approach this decision with careful planning and a clear understanding of your financial position. Working with a financial advisor or a mortgage expert can help ensure that your support doesn’t jeopardise your own financial security while giving your loved ones the best possible start on their homeownership journey.

By thoughtfully navigating these challenges, the Bank of Mum and Dad can continue to play a transformative role in the lives of the next generation.