How Parents Can Use Equity to Help Kids Buy a Home
Updated 25 April 2026
For many UK families, parental equity has become the bridge between a child being able to buy in their late twenties and waiting another decade. This guide explains the main routes available to parents who want to use the value held in their home to support a child's purchase: remortgaging to release a lump sum, taking out a lifetime mortgage, going on the mortgage as a joint borrower, using a family offset arrangement, or gifting a cash deposit. Each route carries different lender criteria, tax considerations and long-term consequences for both generations, and the right choice depends on the parents' age, retirement plans, the size of help required and the child's own affordability.
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For a free initial consultation, call 01202 155992 or contact Mortgage One.
Remortgaging the Family Home to Release a Deposit
Remortgaging is usually the first option parents consider because it does not require taking on a separate later-life product. The existing mortgage is replaced with a larger one, and the additional borrowing is released as cash that can be gifted or loaned to the child. Affordability is assessed on the parents' current income, the proposed new monthly payment and any remaining mortgage term, so this route works best when the parents are still earning, comfortably below state pension age, or able to evidence pension income that supports the new payment into later life. A complete walk-through of how the process works is set out in the Mortgage One remortgaging guide, including how lenders treat capital raising for ‘gift to family’ purposes.
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A further advance from the existing lender can be a faster, cheaper alternative to a full remortgage where the existing rate is competitive and the parents simply want a top-up on the same property. The further advance sits as additional borrowing alongside the main loan, often on a different rate. Lenders have different policies on the acceptable purpose of funds, and most will lend for a gifted deposit to a family member, but each application is underwritten on its own facts. The further advance route is covered in more detail in the additional borrowing guide.
For parents who do not want to disturb a competitive existing rate, a second charge mortgage is a third capital-raising option. It sits behind the main mortgage on the property and is typically used where the existing lender will not increase borrowing, where early repayment charges on the main loan are punitive, or where adverse credit events make a remortgage difficult. Rates are usually higher than first-charge products, and the second charge mortgage guide covers how they work in detail.
Lifetime Mortgages and Equity Release Plans
A lifetime mortgage is the most widely used form of equity release. It allows homeowners aged 55 and over to borrow against their home with no requirement to make monthly repayments; the interest rolls up over the loan and is repaid from the property when the last surviving borrower dies or moves into long-term care. The lump sum released is tax-free and can be gifted to a child as a deposit, used to bridge a shortfall on their purchase, or held in reserve. Lifetime mortgages are regulated by the Financial Conduct Authority and require specialist later-life advice.
Plans that meet Equity Release Council standards include a no-negative-equity guarantee, so the debt can never exceed the eventual sale value of the property, and the right to remain in the home for life or until moving into long-term care. Lifetime mortgage interest rates are typically higher than standard residential mortgages and compound over the life of the loan, so the balance can rise sharply over fifteen or twenty years where no voluntary payments are made. Most modern plans allow voluntary partial repayments to slow or stop the roll-up, and many offer a drawdown facility so funds are taken in stages rather than as a single lump sum.
Equity Release will reduce the value of your estate and can affect your eligibility for means tested benefits. Specialist advice is mandatory before proceeding. Mortgage One refers equity release enquiries to authorised lifetime mortgage advisers within the Quilter Financial Planning Network, and the equity release guide and the dedicated lifetime mortgages explainer cover product features in more depth.
Joint Mortgages, Guarantor Loans and JBSP Arrangements
Where a child cannot borrow enough on their own income, parents can join the application to lift affordability without releasing equity from their own home at all. Three structures are commonly used. A standard joint mortgage puts both parents and child on the title and the loan, which means the parents become joint owners and may face a 5% Stamp Duty Land Tax surcharge on a second property. A guarantor mortgage adds the parents' income or property as security without making them owners, and a joint borrower sole proprietor arrangement, often abbreviated to JBSP, lets the parents support affordability without going on the title at all, which avoids the Stamp Duty Land Tax surcharge and keeps the property in the child's name only.
The right structure depends on the lender, the child's deposit, the parents' age, and how the family wants to manage the long-term split of ownership and tax. JBSP has become the dominant route for first-time buyer support because it neatly separates ‘helping with the mortgage’ from ‘owning the property’. The guarantor mortgages guide and the joint borrower sole proprietor guide cover the technical differences.
For a free initial consultation on parental support options, call 01202 155992 or contact Mortgage One.
Family Offset Mortgages
A family offset mortgage allows parents to place savings into a linked account that offsets against the child's mortgage balance for interest calculation purposes. The savings remain owned by the parents and can usually be withdrawn under the lender's terms; in return, the child pays interest only on the difference between the loan and the savings, reducing monthly payments or shortening the term. Family offset mortgages are offered by a small group of building societies and lenders, and acceptable parental contribution sizes vary. The structure works particularly well where parents have liquid capital they want to keep accessible rather than gift outright. Mortgage One can advise on which offset products allow third-party savings and how the arrangement compares with a gifted deposit on the headline interest cost. The offset mortgages guide explains the underlying mechanics in detail.
Gifted Deposits and the Bank of Mum and Dad
For parents with sufficient cash savings, a straight gifted deposit remains the simplest option. The funds are transferred to the child, treated as their own deposit by the lender, and supported by a signed gifted deposit letter confirming that the money is a gift, not a loan, and that the parents will have no interest in the property. Most UK lenders accept gifts from immediate family without restriction, although a minority require the parents to declare any retained interest and may decline if the gift is conditional. The mortgage deposit guide covers how lenders assess deposit sources, including gifts.
The gifted route also extends to lump-sum top-ups for first-time buyers who already have some savings of their own. A child with a 5% deposit who receives a parental gift of a further 10% may move from a 95% to an 85% loan-to-value bracket and gain access to materially better interest rates. The first-time buyer guide explains how loan-to-value bands shift the rates available.
Inheritance Tax and the Seven-Year Gift Rule
Lifetime gifts above the available allowances are treated as potentially exempt transfers and only fall fully outside the parents' estate for inheritance tax once seven years have passed. If the parent dies within seven years of making the gift, the value is brought back into the estate for inheritance tax calculation. Where a gift, when added to other chargeable transfers in the seven years before it, exceeds the £325,000 nil-rate band, taper relief reduces the inheritance tax payable on a sliding scale: 32% for gifts made three to four years before death, 24% for four to five years, 16% for five to six years and 8% for six to seven years. Below the nil-rate band, no inheritance tax is due regardless of when the gift was made, and the standard 40% rate applies to the excess where death occurs within three years.
The annual gift exemption of £3,000 per donor and the small gifts exemption of £250 per recipient remain available each tax year, and gifts out of normal income that do not affect the giver's standard of living are also immediately exempt. The Autumn Budget 2025 confirmed that the £325,000 nil-rate band and the £175,000 residence nil-rate band remain frozen until April 2031, and that lifetime gifting rules and the seven-year rule are unchanged. Mortgage One is not a tax adviser, and parents considering a substantial gift should take advice from a qualified accountant or solicitor on their specific position.
Risks Parents Should Weigh Before Using Equity
Releasing equity, in any form, increases the parents' debt and reduces what is left to pass on. A remortgage adds monthly outgoings at a stage of life when household income often falls; a lifetime mortgage compounds interest for decades; a joint or JBSP arrangement ties parents to the child's property until the loan is removed. If the relationship between joint borrowers breaks down, the family may face refinancing or sale at an inopportune moment. Means-tested benefits, residential care funding assessments and inheritance tax exposure can all be affected by the route chosen. Mortgage One arranges parental support cases from the whole of market and matches the structure to the family's age profile, retirement income, tax position and timeline rather than to a single product. Where a case spans both later-life lending and a residential mortgage for the child, both halves are coordinated together, including referrals to specialist advisers within the Quilter network where regulated equity release advice is required.
Where parents are nearing or in retirement, lender appetite for traditional remortgages narrows, and later-life products such as retirement interest-only mortgages, term-extended residential loans and lifetime mortgages may be more appropriate. The mortgages for pensioners guide outlines what is available.
To discuss the most suitable route for your family circumstances, call 01202 155992 or contact Mortgage One.
The information provided in this article is for general guidance only and does not constitute personal or regulated financial advice. If you'd like to understand what these moves could mean for you, speak to Mortgage One. We can explain your options and timings based on your specific circumstances.
Some Buy to Let mortgages are not regulated by the Financial Conduct Authority.
FAQs
1. Can my parents remortgage their home to give me a deposit?
Yes, parents can remortgage to release equity and gift the proceeds as a deposit, subject to the lender's affordability assessment and capital-raising policy. Most lenders accept gifts to family for property purchase, and the funds are then treated as the child's own deposit. The parents' new monthly payment must be sustainable on their evidenced income, including any pension income if they are nearing or in retirement.
2. What is the difference between equity release and a remortgage?
A remortgage is a standard residential mortgage that requires monthly capital and interest repayments and is assessed on income. Equity release, in the form of a lifetime mortgage, allows homeowners aged 55 and over to release a tax-free lump sum without monthly repayments; interest rolls up over the life of the loan and is repaid from the property when the last borrower dies or moves into long-term care. Equity release is more expensive over time but does not depend on income.
3. What is a joint borrower sole proprietor mortgage?
A joint borrower sole proprietor arrangement, or JBSP, allows parents to support affordability on the mortgage without being named on the property's title. The child is the sole legal owner, while the parents are jointly responsible for the loan repayments. This avoids the additional Stamp Duty Land Tax surcharge that applies when parents take legal ownership of a second home, and it typically suits families helping a first-time buyer.
4. How much can I gift my child for a house deposit without paying inheritance tax?
There is no upper limit on the amount that can be gifted, but lifetime gifts above the available exemptions are treated as potentially exempt transfers under the seven-year rule. If the parent survives seven years from the date of the gift, it falls outside the estate for inheritance tax. The £3,000 annual gift exemption and the £250 small gifts exemption are immediately tax-free. Tax treatment depends on individual circumstances, and a qualified tax adviser should review any substantial gift.
5. Will using equity release affect my state benefits?
A lifetime mortgage releases capital that may take the parents above the threshold for means-tested benefits such as Pension Credit, Council Tax Reduction and pension-age Universal Credit. The exact effect depends on the size of the lump sum, the parents' other savings and any drawdown structure. A specialist equity release adviser will model the impact before recommending a plan.
6. Can a family offset mortgage help if I do not want to give the money outright?
Yes. A family offset mortgage links the parents' savings to the child's mortgage so that interest is charged only on the difference between the loan and the savings. The parents retain ownership of the funds and can typically withdraw them under the lender's terms, while the child benefits from a lower monthly payment or a shorter term. This is a useful alternative where parents want to help without permanently transferring capital.
7. Can my parents use their pension to help me buy a home?
Parents can take a tax-free lump sum from a defined contribution pension and gift it to a child for a property deposit, subject to the rules of their scheme. The wider tax position is changing because, from April 2027, most unused pension funds will fall within the inheritance tax estate. This change has prompted more families to consider drawing on pension funds earlier to support a child's purchase. Pension decisions should be reviewed by a qualified pensions adviser before any drawdown.
8. What if I cannot help with a deposit but want to support my child's purchase?
Where a parent cannot release capital, a guarantor mortgage, JBSP or family offset arrangement provides support without an upfront cash transfer. The choice between them depends on whether the parent's income, property or savings are the strongest contribution, and on the lender's appetite for each structure. Mortgage One reviews all of these options together rather than treating them as alternatives in isolation.