Releasing equity to gift a deposit can get your children onto the ladder years earlier, but the money cannot be asked for back and the interest compounds. How the gifting rules work, what lenders require, and the alternatives, from JBSP mortgages to downsizing.
Soaring property prices and stringent mortgage stress testing have made getting onto the property ladder a monumental task for first-time buyers across the UK. For many young people, saving for a 10% or 15% deposit while paying high rental costs feels almost impossible. As a result, the Bank of Mum and Dad (BOMAD) has grown to become one of the nation's largest residential mortgage lenders in spirit, if not in name.
While some parents use surplus savings or premium bonds to fund a child's deposit, an increasing number of homeowners over the age of 55 are turning to equity release to access capital tied up in their family homes. Using equity release to gift a property deposit can provide a life-changing boost to your children or grandchildren, but it requires careful financial planning. In this guide, we explore how equity release works for family gifts, the key benefits and potential pitfalls, and alternative ways parents can help their children buy a first home.
Equity release allows homeowners aged 55 and over to access the value tied up in their property without having to move home. The most popular form of equity release in the UK is a Lifetime Mortgage.
With a Lifetime Mortgage, you borrow a proportion of your home's value as a lump sum or a drawdown facility. Because the money is a loan rather than income, it is not subject to Income Tax. Unlike a conventional mortgage, you are not required to make mandatory monthly repayments. Instead, interest rolls up over time, and the total loan plus accrued compound interest is repaid when you pass away or enter long-term care, usually from the sale of the property.
Products meeting Equity Release Council standards carry a set of protections. The main ones include:
The Council publishes its full product standards, and your adviser will confirm which apply to any product recommended to you.
The primary driver for using equity release as part of the Bank of Mum and Dad is timing. Historically, property wealth was passed down as an inheritance. However, with modern life expectancies, many adult children do not inherit until their 50s or 60s, long after they need assistance getting onto the housing ladder.
By releasing equity in your late 50s, 60s, or 70s, you can provide an "early inheritance." This financial boost delivers several practical advantages:
This section is general information, not tax advice. AB Mortgages is a mortgage broker and does not provide tax or estate planning advice. Tax treatment depends on your individual circumstances and may change. Speak to a qualified accountant or estate planner before gifting any money.
Gifting capital unlocked through equity release involves legal frameworks, regulatory requirements and tax obligations. Both parents and adult children should understand these factors well before any funds are drawn down or transferred, as missteps can create unexpected tax liabilities or delay mortgage approvals.
Cash released from your home becomes subject to standard UK lifetime gifting rules once transferred to a relative. Under HMRC rules, gifts of this nature are classified as Potentially Exempt Transfers (PETs). Under the 7-Year Rule, if you survive for seven full years after making the gift, the money moves completely outside your estate for Inheritance Tax purposes.
If you pass away within seven years, the gift forms part of your estate assessment. Your available allowances are the £325,000 nil-rate band, plus up to £175,000 Residence Nil Rate Band when passing a main home to direct descendants. Both figures are frozen until April 2031. Taper relief reduces the Inheritance Tax rate on a gift made between three and seven years before death:
One point catches a lot of people out. Taper relief only comes into play where your total gifts in the seven years before death exceed the available nil-rate band. If you gift £40,000 and die two years later, that gift sits comfortably inside the £325,000 band and no Inheritance Tax is due on it at all. Taper relief matters for larger gifts, or where several gifts add up over time.
Worth knowing as well: where tax does become due on a failed gift, the liability falls on the person who received it rather than on the estate. If your child has already put the money into a property, that could leave them with a bill they cannot easily pay.
Parents can also use the annual exemption of £3,000 per tax year, which can be carried forward one year if unused. Wedding gifts sit outside the seven-year rule entirely, with a parent able to give £5,000 and a grandparent £2,500 towards a marriage, and small gift allowances are available on top.
When your child applies for their mortgage using gifted equity, their lender and conveyancer will carry out rigorous due diligence. Mortgage lenders must be satisfied that the deposit is a genuine unencumbered gift rather than an informal loan creating undisclosed debt. They require strict Anti-Money Laundering (AML) checks and a formal, legally binding Gifted Deposit Declaration confirming the following:
Parents should also provide bank statements demonstrating the source of funds, usually the equity release completion statement from their solicitor, to satisfy anti-money laundering verification.
While helping your child onto the property ladder can transform their financial future, equity release is a serious, long-term commitment secured against your primary residence. It carries significant financial trade-offs that need careful evaluation alongside independent financial advice.
Equity release is far from the only path to support first-time buyers. Depending on your age, income, and financial position, several alternatives may offer greater flexibility or lower overall borrowing costs.
A JBSP mortgage allows parents to accept joint legal responsibility for mortgage repayments alongside their child without being listed on the property's legal title deeds. Combining household incomes boosts the child's borrowing limit without releasing cash from your home. Because parents are not registered proprietors, this arrangement avoids the Stamp Duty Land Tax surcharge on additional properties, currently 5% in England and Northern Ireland, while preserving full first-time buyer relief for the child. Scotland charges Additional Dwelling Supplement at 8% and Wales applies its own higher rates, so the position differs depending on where the property sits.
If you have proven, stable retirement income such as state, occupational, or personal pensions, a RIO mortgage lets you borrow against your equity while making mandatory monthly interest repayments. Because interest is serviced each month rather than rolled up, the principal balance remains flat, which prevents compound interest growth and preserves more of the estate for your beneficiaries. One thing to be aware of on joint applications: lenders assess affordability on whether the surviving partner could still cover the payments alone, and that is the most common reason a RIO application is declined.
Selling a larger family home to move into a smaller, more accessible, or lower-value property releases debt-free capital. While downsizing involves moving costs, legal fees, and estate agent commissions, it avoids ongoing mortgage interest entirely and provides a clean capital sum to gift directly to children.
Using equity release to power the Bank of Mum and Dad can transform your children's life trajectory, helping them establish homeownership years sooner than saving alone would allow. However, it is essential to balance family goodwill against your own long-term security, care needs, and estate goals.
Before making any decisions, speak to an FCA-regulated mortgage and equity release adviser alongside a qualified estate planner. They will help you run compound interest calculations, evaluate alternative options, and make sure your retirement remains protected.
Your home may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Not all Buy to Let Mortgages are regulated by The Financial Conduct Authority.
Written by
Ashley has spent over 20 years in property, building and selling two estate agencies before founding the firm. He leads residential, buy-to-let and protection advice at AB Mortgages, and the complex, high value cases at AB Specialist Finance. His standard is simple: every client gets MD-level service.
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