Buying Your Home Through Bank of Mum and Dad? Let’s Talk About It

Lifts to the train station, hugs on hard days, extra tea bags when you’re running low... some things can feel easy to ask your parents for. But what about when you need support for something bigger, like buying your home?

House prices on the open market are higher than ever, and good mortgage rates are increasingly difficult to access. As a result, more and more people are turning to family for financial support when buying a home. Accepting financial support can feel taboo and might bring up some complex emotions you don’t expect.

This blog explores the realities of buying with family help, breaking down the pros and cons, and our alternative paths to homeownership, to help you make the decision that’s right for you.

The Bank of Mum and Dad – what is it? 

If you’ve come across the acronym BOMAD while looking into the best way to buy and wondered what it means, you’re not alone. It stands for Bank of Mum and Dad, and it refers to the process of your parents (or other close family members like grandparents) assisting you financially to buy a home. This financial assistance typically comes in the form of: 

• A one-time financial gift towards your deposit
• A low-interest or interest-free loan
• Being a guarantor for your mortgage
• A Joint Borrower Sole Proprietor (JBSP) mortgage 

The benefits of buying through the Bank of Mum and Dad

You could save a deposit sooner

Saving for a deposit can take a long time, especially if other financial obligations limit how much you can set aside each month. A financial gift from family could provide the boost you need to make an offer on your dream home.

Locking in the house price before it goes up

Property prices can fluctuate over time, and if they increase while you’re saving, your target can suddenly feel out of reach. If support from the BOMAD helps you buy sooner, you may be able to secure your home at its current price before the market shifts.

Accessing better mortgage rates

Typically, the larger your deposit, the better the mortgage rates your lender may offer, which could save you a significant amount over the course of your repayments. Having your parents act as guarantors or buying through a JBSP can also reduce or remove mortgage insurance fees, as lenders may view you as a lower-risk borrower.

Buying somewhere you couldn’t afford on your own

Financial support from your family could help you put an offer on your dream home in an area you truly love, rather than compromising on location or property type purely for affordability.

Peace of mind for parents

For many parents, seeing you begin the next chapter of your life feeling secure and happy can be deeply rewarding. In some cases, offering financial support also serves as a practical way to pass on part of your inheritance early, knowing it’s helping to provide greater security for your future.

Important considerations before using the Bank of Mum and Dad

Managing expectations to avoid family tensions 

It’s important that, before any financial assistance is given or accepted, everyone discusses their expectations openly, understands them fully, and ideally puts them in writing to avoid confusion in the future. A written agreement can help you enjoy the benefits of receiving support while providing greater clarity for everyone involved.

Knowing what you’re willing to compromise on

If accepting help means your parents would like input in decisions about your new home, or if the money is a loan with specific repayment expectations, it’s key to understand this from the outset. This allows you to decide what you are willing to compromise on before moving forward and plan accordingly. 

Considering the unexpected

Circumstances can change, often when you least expect them to. It’s important to fully understand your financial obligations and have a contingency plan in place, so you can continue managing your mortgage payments if your situation changes.

Complex personal feelings about receiving support

Independence is often an important part of adulthood, and in the short term, accepting financial help from family can feel like a step backwards. Even when long-term, it’s helping you move towards greater independence through homeownership. Feelings of guilt may also arise if you worry that your parents’ support could disadvantage them in some way.

That’s why open and honest communication with your loved ones is essential. Clear conversations can help everyone feel confident about the arrangement and allow you to move forward with peace of mind. If your parents are in a stable position to offer support safely and sustainably, and accepting that help aligns with your goals, it’s perfectly reasonable to consider it.

Parents taking on financial risk 

 To offer immediate financial support, some parents choose to gift or lend money from their retirement fund. In the short term, this allows them to support you; however, if there is no clear plan to recoup the amount, there is a risk that this could compromise their retirement timeline and plans. 

Financial gifts vs financial loans

Mortgage lenders typically want to know whether your family is supporting you with a gifted amount or a loan. If your parents opt to loan you the money, this will be factored into your income debt ratio by your mortgage lender and potentially limit your borrowing power.

The bottom line when buying a home with family

It’s a challenging housing market. There’s no shame in accepting financial support if your family is in a position to offer it and it works for you.  Especially if you make sure to have the important discussions, carefully consider the pros and cons, and plan for the unexpected. 

That said, not everyone is in the same situation, and financial situations can change. It’s important to know the other homeownership pathways available to you that might make homeownership more affordable for you. 

Find your way to buy with The Hill Group

At Hill, we’re proud to offer a range of ways to buy designed to make buying your new home and selling your current one more manageable. Explore our three core incentive schemes: Next Move, Part Exchange, and the Own New Rate Reducer, which can help lower your monthly payments with mortgage rates as low as 2%.

FAQs about buying a home through BOMAD

What is a Joint Borrower Sole Proprietor (JBSP) mortgage?

With a JBSP mortgage, up to four people (often family members) jointly apply for a mortgage and contribute towards repayments, while only one person legally owns the property. This can improve affordability and borrowing power, making it easier to secure better mortgage rates. 

Is accepting financial help from family right for me?

Whether financial help from family is right for you depends on your personal circumstances. Carefully consider factors like your financial situation, long-term goals, and family dynamics before deciding. If in doubt, it’s always worth seeking advice from a trusted financial adviser so you can make the most informed choice.

Can I buy a Hill home with financial help from my parents?

Yes, so long as you and your supporting family member pass our affordability assessments and meet your mortgage lender criteria. 

Do I need to pay tax on gift payments towards my home?

Usually, the UK government doesn’t tax gifted deposits at the time they are given. However, inheritance tax rules may apply if the giver passes away within seven years. To find out more about the government policy on inheritance tax, visit the official government guidelines page.