Help Your Child Buy Their First Home with Equity Release

With the rise in property prices across the UK, high living costs, and stricter lending criteria, it is becoming increasingly common for first-time buyers to require some financial support from their parents to be able to purchase their first home.

If you’re a parent asking, “how can I help my daughter or son buy a house?” or “What’s the best way I can help my children with a mortgage deposit?” – we’ve got the answers.

In truth, there are a variety of different ways in which a parent can help support their child in the purchase of their first home, with one of the most effective methods being equity release.

In this article, we dive into all the challenges young buyers are facing today, traditional and modern solutions for parental support, how equity release works, and the key considerations you need to know. Let’s jump in.

The Challenge of Getting on the Property Ladder Today

It’s no secret – today’s property market is tough for first-time buyers. With the amalgamation of increased property prices, high living costs, and competitive demand, it has become increasingly difficult to save for a sizable deposit.

In addition, lenders are becoming more cautious, imposing stricter credit requirements and demanding clear proof of affordability. All of which has made obtaining mortgage help from parents an increasingly important resource for bridging the gap for first-time buyers.

For parents who are financially secure and who have perhaps already paid off most of their mortgage, a popular option is to release equity to buy another property, or to provide a deposit for their child’s property.

Equity release is a unique mortgage product that can open doors for families to support first-time buyers, without the need to sell or move out of their home.

While the act of parents releasing equity to help their children is becoming more popular as an efficient, flexible, and tax-efficient way to assist younger generations, it is important that you understand both the hurdles that first-time buyers can expect to face and how equity release works.

Releasing equity to help children is becoming an increasingly popular, flexible, and tax-efficient way for parents to support the next generation. However, it’s important to understand both the challenges first-time buyers face and how equity release works.

Understanding the First-Time Buyer Hurdle: Deposits & Mortgage Access

To first understand how parents can help support their child in their mortgage journey, it’s essential to explore the typical barriers faced by first-time buyers, particularly around saving for a deposit and accessing affordable mortgage products.

How Much Deposit is Really Needed to Buy a Home?

Today, most lenders will require first-time buyers to provide the minimum deposit of 5% of the property’s value. At this juncture, however, it is important to note the advantages of being able to provide a larger deposit, reducing the total loan-to-value rate.

To access the most competitive mortgage rates, a higher deposit (10% or more) would typically be required. In some cases, lenders may ask for 15% or even 20% depending on your financial profile.

Crucially, a larger deposit will help secure a better rate, which in turn could save you a lot of money over the full mortgage term. This is why it is always best practice to consult with a trusted mortgage broker to consider the financial longevity of your mortgage product.

One of the most common questions we get asked from parents at Boon Brokers is “can you use the equity from equity release for a deposit?” The answer is yes, you can.

Many parents and families today are releasing equity from the asset of their own property in order to help provide their child with a deposit for their property purchase. In this context, equity can be used as a deposit through gifts or loans, helping children secure more favourable mortgage deals.

It’s important to note that any equity release that is gifted to children for their home deposit will be classified as a ‘gifted deposit’. As such, lenders will often want evidence that gifted deposits are genuine and not repayable loans. Transparency in these arrangements is key to avoid mortgage application complications.

Traditional Ways Parents Can Provide Financial Support

There are a variety of ways in which a parent can provide financial support to help their child get on the property ladder. From gifting a deposit to acting as a guarantor, let’s explore the tried-and-tested routes that can make a meaningful difference.

Gifting a Deposit: The Pros, Cons, and Legalities

Gifting a deposit is one of the most direct ways to support a child’s home purchase.

In the UK, any gift (including gifting money through equity release) requires a clear written agreement – otherwise known as a ‘deed of gift’.

It is important to note that if you’re planning to release equity from your property to help provide your family with additional funds as a gift, this must be clearly traceable and declared to the mortgage lender as a deed of gift.

But what does providing a financial gift mean for you?

It is vital that before you complete any financial gift, you have a clear understanding of how that will affect your own financial situation. Let’s take a quick overview of the the pros and cons:

Pros:

• Improves mortgage eligibility for your child by providing an increased deposit size
• Reduces their overall loan amount and potential interest paid
• Legally removes any future repayment obligations

Cons:

• Potential Inheritance Tax (IHT) implications if the donor passes away within 7 years
• Donor loses control of gifted funds permanently
• Could impact parents’ financial security if they need those funds later

It’s always best practice to consult with a solicitor and tax adviser before gifting equity, especially if the gifted amount is substantial.

Equity Release: A Solution for Parents to Help Their Children

Equity release has grown in popularity as a practical solution for parents to unlock funds tied up in their homes. This option provides valuable financial support to help their children step onto the property ladder and buy their first home.

Let’s explore how equity release can make this possible.

What Exactly Is Equity Release and How Does Equity Release Work?

Equity release is a specialised mortgage product that enables homeowners to unlock cash that would otherwise be tied up in their property, without the need to sell or move out.

This product allows you to stay in your home while accessing funds that can support various needs, such as supplementing income, financing home renovations, or assisting family members with significant expenses.

With a lifetime mortgage, you borrow a percentage of your home’s value, and the loan is repaid from the sale of your property after you pass away or move into long-term care.

To be eligible for a lifetime mortgage, you usually need to be aged 55 or over and own your home outright. The amount you can borrow depends on your age, the property’s value, and the lender’s criteria.

It’s important to understand the different structure of a lifetime mortgage in comparison to a traditional mortgage.

Unlike a traditional mortgage, there is no required monthly repayment. Instead, interest on lifetime mortgages compounds, meaning the total amount will grow if left unpaid. As such, if you are considering taking out an equity release mortgage, it is crucial you consult with a financial adviser.

Working with a qualified financial adviser and mortgage adviser can help you decide whether to make interest payments or let them accumulate, ensuring the best outcome for your estate.

How Can Equity Release Help Fund a Child’s Home Purchase?

Parents can take out a lifetime mortgage in order to release funds from their property to:

• Gift a deposit to their child
• Cover associated costs like legal fees and moving expenses
• Provide a financial cushion during the initial years of homeownership
• Support rent payments while the child builds a deposit

In short: Equity release can offer parents a flexible, non-invasive way to help their children without needing to sell or downsize, making it a preferred option for many families.

What Is a Drawdown Lifetime Mortgage and Why Is It Often Preferred?

A Drawdown Lifetime Equity Release is a mortgage product that allows homeowners to take an initial lump sum and ‘draw down’ further amounts as needed, accruing interest only on the amount withdrawn.

This flexibility helps parents create a structured and staged approach to providing financial support, as and when their child needs financial support.

Importantly, drawdown lifetime mortgage plans often result in lower overall interest costs and give parents greater control over when and how much equity they release.

Navigating the Equity Release Process for Family Gifting

Most importantly, releasing equity from your property to help your family requires careful planning and adherence to a clear process.

Understanding the key steps involved can make the experience smoother, ensuring compliance with regulations and protecting everyone’s interests.

Let’s take a look at the typical equity release application process:

What are the Key Steps to Apply for Equity Release?

1. Consult an FCA-regulated equity release adviser
2. Arrange a professional property valuation
3. Complete the equity release application process with your chosen provider
4. Receive a formal offer and terms
5. Obtain independent legal advice
6. Complete legal documentation and receive funds

At Boon Brokers, our dedicated advisers can guide you through every stage of the equity release journey. We will work with you to find the right product and liaise with the best lenders making it easier for parents to confidently support their children’s homebuying goals through equity release.

How Long Does the Entire Equity Release Process Take?

So, how long does equity release take? Typically, the full process can take between 6 and 8 weeks, though it varies depending on property complexity, lender efficiency, and legal factors.

Being prepared with documentation and professional advice can help speed this up.

Here is an overview of how long equity release takes:

1. Equity Release Advice: 2-4 Hours
2. Completing the Application: The time frame varies but your advisor will complete the application and then get evidence such as ID to submit to the lender.
3. Application Submission: This is completed using an online portal and typically takes no longer than 2 hours.
4. Property Valuation: The lender will conduct a valuation of your property. Normally a valuation takes about 30 minutes.
5. Formal Offer: Once the lender is satisfied that you and the property meet their criteria, they will make a formal offer. It normally takes about 48 hours after the valuation for a formal offer to be made.
6. Legal Advice and Requisitions: Because this is a property transaction, you will need legal advice and to sign and complete forms. The legal process normally takes between 1-2 weeks.
7. Completion: You’re all set, all the documentation has been completed and funds are released.

The Role of Independent Financial and Legal Advice

It is crucial to understand that in line with the regulation set by the Financial Conduct Authority , independent advice is mandatory to ensure the product suits your financial situation and to protect you from unsuitable commitments.

Solicitors explain the legal implications, while financial advisers assess affordability and long-term effects.

Speak to an Expert Mortgage Specialist Today

At Boon Brokers, we specialise in providing independent, fee-free mortgage advice – including expert guidance on equity release solutions tailored to your unique circumstances.

Whether you’re a parent exploring equity release and mortgage options to help your child, have questions about the process of equity release, or comparing your options with government schemes, our dedicated whole-of-market advisers are here to help.

We’ll guide you through every step – from assessing your eligibility and explaining how lifetime mortgages work, to ensuring your family is protected for the long term.

Contact our team today and explore how equity release could support your child’s homeownership journey.