The Bank of Mum and Dad: How Family Assisted Mortgages Work

According to Which? high house prices, tough affordability checks and the need to save a large deposit have long been cited as reasons why first-time buyers struggle to get onto the property ladder, which has led many would-be buyers to rely on the so-called ‘Bank of Mum and Dad’. (source link)

But what exactly is a family assisted mortgage, how does it work, and what options are available? This guide breaks it all down.

What Is a Family Assisted Mortgage?

A family assisted mortgage is a home loan where a relative, most commonly a parent, but sometimes a grandparent, sibling, or other family member, provides financial support to help a buyer secure a mortgage they might not otherwise qualify for.

This support can take several different forms depending on the lender and the buyer’s individual circumstances. Some involve gifting money, others use savings as security, and some involve the family member taking on a degree of legal or financial responsibility for the loan. Understanding the different types of family assisted mortgage available is important, because each comes with its own benefits, risks, and eligibility requirements.

Gifted Deposit Mortgages

The most straightforward form of family assisted mortgage is the gifted deposit. Here, a parent or relative simply gifts a sum of money to the buyer to use as part or all of their deposit.

The key word is “gifted.” Lenders will require a signed letter confirming that the money is not a loan and that the person gifting it has no claim over the property. This protects the buyer’s mortgage application, as a loan would be factored into affordability calculations and could reduce the amount they’re able to borrow.

A larger deposit opens up better mortgage rates and makes approval more likely, so even a relatively modest gift from a family member can make a significant difference to both the buyer’s options and their monthly repayments.

Guarantor Mortgages

A guarantor mortgage is another popular form of family assisted mortgage, and one that can be particularly useful where the buyer has a limited credit history or a lower income. With a guarantor mortgage, a family member agrees to cover the mortgage repayments if the buyer is unable to do so. The guarantor’s income and in some cases their property are taken into account by the lender, which can allow the buyer to borrow more than they would be able to on their own.

It’s important to understand that being a guarantor is a serious financial commitment. If the buyer misses payments, the guarantor becomes liable. Any defaults could also affect the guarantor’s own credit record. This is why independent legal advice is strongly recommended for anyone considering becoming a mortgage guarantor.

Family Deposit Mortgages

A family deposit mortgage is one of the most innovative types of family assisted mortgage on the market. With a family deposit mortgage, the family member doesn’t gift money to the buyer. Instead, they place a set amount, typically around 10% of the purchase price, into a savings account linked to the mortgage. This acts as additional security for the lender, allowing the buyer to purchase with little or no deposit of their own.

The key advantage for the family member is that their money remains theirs. Provided the buyer keeps up with their repayments, the savings are returned after a set period, usually three to five years, often with interest. It’s a way of helping without permanently giving the money away.

However, if the buyer falls behind on repayments, the savings held in the linked account could be at risk, so it’s important that both parties go into the arrangement with a clear understanding of the commitment involved.

Joint Borrower Sole Proprietor Mortgages

A lesser-known but increasingly popular family assisted mortgage option is the Joint Borrower Sole Proprietor (JBSP) mortgage. This arrangement allows a family member to be named on the mortgage and have their income considered for affordability purposes, without being named on the property deeds.

This is particularly useful when a parent wants to help their child borrow more without triggering an additional Stamp Duty surcharge, which would normally apply if a property owner purchases a second home. Because the parent isn’t on the title deeds, they don’t technically own a share of the property.

It’s worth noting that the family member named on the mortgage is still jointly responsible for the debt, so again, seeking independent financial and legal advice before proceeding is essential.

What Are the Risks?

A family assisted mortgage can be a fantastic solution, but it’s important to go in with eyes open on both sides.

For the buyer, relying on family support can create pressure and, if circumstances change, potential conflict. Buyers should always ensure they can realistically afford the ongoing repayments independently, even if family help made the initial purchase possible.

For the family member providing support, the risks vary depending on the type of arrangement. Gifted deposits are low risk once made, but guarantor arrangements and family deposit mortgages carry ongoing financial exposure. Legal agreements and independent advice help protect everyone involved.

How to Find the Right Family Assisted Mortgage

Not every lender offers every type of family assisted mortgage, and criteria, rates, and terms vary considerably across the market. This is where specialist mortgage advice becomes invaluable.

At 3mc, we work with a wide panel of lenders and have extensive experience helping first-time buyers and their families navigate the options available. Whether you’re a parent exploring how to help, or a buyer trying to understand what support is available to you, we can guide you through the process from start to finish.

Getting onto the property ladder is challenging, but with the right family assisted mortgage and the right advice, it’s absolutely achievable.

Frequently Asked Questions

Can any family member help with a family assisted mortgage, or does it have to be a parent?

While parents are the most common source of support, many lenders also accept contributions from grandparents, siblings, and other close relatives. The exact eligibility rules vary by lender and the type of arrangement, so it’s worth speaking to a mortgage adviser to find out which options are open to you.

Will a gifted deposit affect the mortgage application?

A gifted deposit is treated positively by lenders, as it increases the buyer’s deposit size and reduces the loan-to-value ratio. However, lenders will require a signed gift letter confirming the money is not a loan and that the donor has no claim over the property. If the money were a loan rather than a gift, it would be factored into affordability calculations and could reduce the amount available to borrow.

What happens to the savings in a family deposit mortgage if the buyer misses a payment?

If the buyer falls behind on repayments, the lender may use the savings held in the linked account to cover the shortfall. This means the family member’s savings are at risk until the agreed period ends. It’s essential that both parties fully understand this before entering the arrangement, and that the buyer is confident they can manage the repayments.

Does a Joint Borrower Sole Proprietor mortgage affect the family member’s own mortgage or finances?

Yes, it can. Because the family member is named on the mortgage, lenders will factor this commitment into any future borrowing assessments. If the family member applies for a new mortgage or remortgage of their own, the JBSP commitment will be taken into account. It’s important to seek independent financial advice before proceeding to understand the full implications.

Do I need a solicitor if a family member is helping with my mortgage?

For arrangements such as guarantor mortgages and JBSP mortgages, independent legal advice for the family member is strongly recommended and in some cases required by the lender. A solicitor can help ensure everyone understands their obligations and that the arrangement is properly documented. Even for gifted deposits, a solicitor will typically be involved as part of the conveyancing process.

How much can a family member help me borrow with a guarantor or JBSP mortgage?

This depends on the lender’s affordability criteria and the combined income of all parties involved. In some cases, adding a family member’s income can significantly increase the borrowing amount available. A mortgage adviser can carry out an affordability assessment based on your specific circumstances and identify which lenders are likely to offer the best terms.

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Your home may be repossessed if you do not keep up repayments on your mortgage. 3mc (UK) Ltd is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register under reference 302992. Please note: The FCA does not regulate Business Buy to Let Mortgages.