The Bank of Mum and Dad
Helping your child buy a home is one of the biggest financial decisions you'll make for a loved one. The work is in the structure.
Half of all first-time buyers rely on family money to get onto the property ladder. According to Savills research published in June 2026, gifts and loans from parents totalled £8.3 billion in 2025, rising to £11 billion once inheritance is included. Family help has become the standard route onto the ladder.
Writing nothing down creates the risk: who gets the money back, what a relationship breakdown does to it, and what it does to your own retirement if your child's circumstances change and yours have.
A 2024 High Court case shows how far an unwritten arrangement can travel. In Barry & Anor v Barry1 parents sued their adult son to recover more than £600,000 they said they'd lent him, with no written loan agreement in place. The court examined years of bank transfers, family conversation, and conduct before deciding the loans were real and enforceable, and even then the case ran a two-week trial followed by a separatee hearing on costs. A near-identical case heard the same year went the other way on its own facts. Two families, similar sums, no paperwork in either case. What both families lost wasn't decided by them. It was decided for them, at a cost neither would have chosen.
The risk was never the money changing hands. It's what happens when nobody agrees, in writing, what that money means.
Here's how to close it.
Four decisions that close the risk
Decide what you're doing, before you do it
A gift and a loan carry different tax treatment, different legal protection, and different consequences if your child's relationship ends. Most parents leave the choice unmade. They hand over the money and assume everyone understands the same arrangement. The assumption is the risk, not the money.
A gift is simple to make and hard to protect. Once it's given, it's given. If your child separates from a partner, part of what you gifted can end up split between them, unless you've taken steps in advance to ring-fence it. A gift also stays inside your estate for Inheritance Tax purposes for seven years. Die within three and seven years and the rate tapers down, from 32% in year three or four, down to 8% in year six to seven. Survive seven years and it drops out of your estate entirely.
Reduce the exposure
- Each of you has a £3,000 annual gift exemption, useable without any IHT charge.
- Smaller, regular gifts sit inside that exemption more easily than one large transfer.
- A large single gift is the version most exposed to the seven-year rule.
A loan keeps you in control. There's an understanding the money comes back, and you can set the terms. An unwritten loan behaves like a gift in practice: no lender hands over money on a handshake, and courts treat undocumented family loans with the same scepticism. A loan also carries its own tax exposure. It stays inside your estate until it's repaid or waived. Waive it and gift the balance, and the seven-year clock starts from the waiver, not the original loan.
Protect the money once it's out of your hands
Family courts see this pattern: parents contribute a large sum, the relationship ends, and nobody can agree what the money was. A gift to the couple. A loan to one of them. An investment with an expected return. Without a written record, the answer is decided by a judge, not by you.
Three documents that prevent this
- A Living Together Agreement, drafted with a solicitor, setting out whose contribution is whose and what happens if the relationship ends.
- A pre-nuptial or post-nuptial agreement, if marriage is on the horizon.
- Up-to-date wills for everyone involved, including your child.
Get it in writing, family or not
A short case makes the point. A rule doesn't.
A mother helps her daughter buy a flat. The mortgage lender requires written confirmation the money is a gift, so that's what goes on record. Between themselves, mother and daughter agree it's a loan, repayable when the daughter can manage it. No one draws up a loan agreement.
Years pass. The daughter defaults on the mortgage. The lender repossesses and sells the property. Because the only written record says "gift," the mother has no claim to any of the proceeds.
She dies four years after the original purchase. Because the true arrangement falls within the seven-year IHT window, the money is treated as part of her estate. On a sum of £30,000, the resulting tax bill can run to several thousand pounds, on money that was lost.
One missing document created three separate losses. A proper loan agreement, simple or not, would have prevented all three.
Don't leave your own future short to fund someone else's
Interest-free doesn't mean cost-free. Parents fund this in ways that reduce their own security: drawing down pension income earlier than planned, releasing equity from their home, dipping into savings meant for later life.
None of these choices are wrong on their own. The risk is making one without checking what it does to the rest of your plan, your capacity to absorb a loss if your own circumstances change, through ill health, redundancy, or living longer than expected.
Research from Spring, reported in August 2026, puts the average family handout at £11,241, a figure spanning house deposits, rent, and cost-of-living support rather than property help alone. Yours may run higher. Before you commit to a figure, work out what you can absorb losing, because in a small number of cases, that's what happens.
A lump sum isn't the only way to give
Buy with your child
- A joint mortgage can increase what you can borrow together. You're liable for the full balance if your child can't pay.
- If you own a property, a joint purchase triggers the additional 3% Stamp Duty surcharge.
- Some lenders allow a joint mortgage without adding you to the title deeds, which avoids that surcharge and future Capital Gains Tax exposure.
Use savings as security
- Some mortgage deals let you deposit a percentage of the purchase price into a linked savings account rather than a gifted deposit.
- You earn interest on the deposit while it's held.
- After a five-year term, it's returned to you in full, provided your child has kept up repayments.
Become a guarantor
- You agree to cover the mortgage if your child can't, without handing over any money up front.
- Lenders place a charge against your own home. If your child defaults, both your home and your money are at risk.
- You can be removed from the arrangement once your child can service the debt alone.
Use your own equity as security
- Some lenders will accept the equity in your home as security against a portion of your child's mortgage, rather than requiring cash.
- If nothing goes wrong, it costs you nothing.
- If your child defaults, you're liable for that portion, and your own home is exposed.
What a plan gives you back
Get the structure right and the risk is identified and understood by everyone involved. Your child gets their home. You keep the retirement you planned for. If circumstances change, on either side, the paperwork already answers the question a judge would otherwise have to decide.
Every option in this guide trades certainty for flexibility somewhere. The right one depends on your estate, your retirement plan, and what you can afford to lose, this year and if your circumstances change in ten. A solicitor and a mortgage broker can each answer part of this. The full picture needs someone who sees your whole financial plan.
Talk to us before you commit to a figure. We'll help you work out what's affordable, what protects you if things go wrong, and what it does to the plans you've made for your own life.
Important information
This guide is provided by Pembroke Financial Planning Limited for general information only and does not constitute advice. The Financial Conduct Authority does not regulate estate planning, tax planning, or will writing.
Your home may be repossessed if you do not keep up repayments on a mortgage or any other loan secured against it. Think carefully before securing other debts against your home.
Equity release will reduce the value of your estate and can affect your eligibility for means-tested benefits.
Tax treatment depends on individual circumstances and current legislation, and may change in the future.
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Sources
Spring research, reported via Mortgage Strategy, 7 August 2026.