How equity release can form part of the Bank of Mum and Dad

Releasing equity to help loved ones buy their first home

First-time buyers are still facing a mountain when it comes to saving for a deposit. But equity release may enable older homeowners to help the younger generation overcome the obstacle of saving for a deposit.

With the average first-time buyer now needing to find £23,000 for a 10% deposit (according to Nationwide), it can take many years of hard saving to get onto the property ladder.

Many families are turning to ‘the Bank of Mum and Dad’ as a solution. It’s when parents (or grandparents, uncles, aunts etc.) provide financial assistance to the younger generation at times of significant financial need. Buying a home is one of these, and is now quite common due to rising house prices and the significant size of deposit needed to buy a home.

The Home Owners Alliance reported in 2024 that more than half of homeowners with adult children have or expect to financially help their children to buy a home. They found that 54%  of parents with adult children (age 18+) have already helped them to buy a place, or expect to help them in the future.

Making a gifted cash deposit is one way to do this. Most lenders accept it, as long as they have written confirmation that the money is indeed a gift, and not a loan.

When you make a cash gift, neither you nor the person you are giving the money to has to pay tax on it. But do be aware that the gift may be liable for inheritance tax (HT) should you pass away within seven years.

Is equity release a viable way to gift money?

Of course, not everyone has thousands of pounds sitting around to gift to a loved one. But that doesn’t mean that gifting is out of the question. One solution is to look at the role that equity release can play.

Equity release is a way to access some of your property wealth without having to move or make monthly loan repayments. If you’re a UK homeowner aged 55 or above, depending on lending criteria, you may be eligible.

With a lifetime mortgage  (the most popular form of equity release), you would access a tax-free cash lump sum to gift to your loved one. You are taking out a loan secured on your property, and the loan plus accrued interest are typically repaid when your property is sold after you die or move into long-term care. 

You don’t have to make any payments in the meantime, although you can choose an interest-only lifetime mortgage and pay the interest each month to reduce how much needs to be repaid later on.

You can often ring-fence part of your property’s value to guarantee an inheritance for your family. Also, a no negative equity guarantee means the amount to be paid back is never more than the value of your property.

Equity release certainly isn’t for everyone, and it’s important to understand the pros and cons before going ahead. But it is a tried-and-tested way to release funds for gifting, as long as you understand the long-term costs and implications.

Many people who do it see it as a ‘living inheritance’. They want to prioritise helping the younger generation while they are still alive to see them enjoy the benefits it brings them.

Other options to help someone buy their first home

Equity Release is just one of several options should you wish to make a gift to help someone you know get a deposit together, but lack the cash to do so. Here are some others that may be suitable:

Retirement interest-only mortgage (RIO)

Like equity release, a RIO mortgage is an option open to over-55 homeowners. It works similarly to equity release, although you must commit to paying the interest on the money you borrow.

Letting them live with you rent-free 

This generous act can help them put money aside each month to build up their deposit. If your home is large enough to accommodate them, it can be an ideal solution – as long as you can all live together in harmony!

Remortgaging

By replacing your existing mortgage with a larger one, you can access funds that can be gifted. Your lender will check that you meet their affordability criteria, both now and for the rest of the mortgage term.

A guarantor mortgage

Sometimes known as a family-assisted mortgage, a guarantor mortgage is where you agree to cover the mortgage payments if the person close to you can’t make them. It may make a mortgage possible for someone who otherwise would struggle to be accepted.  

An offset mortgage

If you have substantial savings, you may be able to link these to your loved one’s mortgage with an offset mortgage. This may reduce the interest they pay, saving them money and potentially helping them to pay off the mortgage faster. 

Downsizing to release equity

If you are open to moving home, downsizing to a cheaper property is another way to release equity.

Exploring your options

It can be very rewarding to help your loved ones onto the property ladder, but do make sure you go into it with your eyes open. Seek suitable guidance or advice to help you choose how to do it. 

If equity release is one of the options you are considering, carefully weigh up the pros and cons first. Speaking to an adviser can help you understand your options and compare plans across leading equity release providers.

To find out if you are eligible, how much you can release, and get all the advice and support you need, talk to one of our selected advisers by calling 0808 178 3055 or request a call back.