Bank of Mum and Dad – Family Loans

Many parents want to help their children buy a home.

Not all of them are comfortable giving money away.

For some, the funds being used still form part of their wider financial plan. They may be earmarked for retirement, future investment, or estate planning.

This is where family loans can offer an alternative.

Instead of gifting a deposit, parents lend money to their child under agreed terms, allowing support without permanently giving up control of capital.

What Is a Family Loan?

A family loan is exactly what it sounds like.

Parents provide funds to support a property purchase, but with the expectation that the money will be repaid.

This can be structured in different ways:

• Interest-free loans
• Loans with a commercial or nominal rate of interest
• Flexible repayment terms, or repayment on sale of the property

The key point is clarity.

The arrangement should be formally documented so all parties understand their position.

How Lenders View Family Loans

From a mortgage perspective, this is where things become more nuanced.

Most lenders will want to ensure that the loan does not undermine affordability or increase their risk.

Typically, they will require confirmation that:

• The loan does not involve mandatory monthly repayments that would impact affordability (if it does, this will be assessed)
• The parents will not take a legal charge over the property, unless specifically agreed by the lender
• The arrangement is clearly documented and understood

It is also worth noting that lender appetite varies.

Some lenders are comfortable with family loans.

Others are not.

Understanding where each lender sits is key to structuring the case correctly from the outset.

The Key Considerations

As with all Bank of Mum and Dad strategies, the detail matters.

1. Control vs Simplicity

A family loan allows parents to retain control over their capital.

However, it introduces an additional layer of complexity compared to a straightforward gift.

Clear documentation is essential.

2. Impact on Mortgage Affordability

If repayments are required, lenders will factor these into affordability calculations.

This can reduce borrowing capacity.

In some cases, structuring the loan without regular repayments may be more appropriate, depending on the overall plan.

3. Legal and Documentation Requirements

A formal loan agreement should be in place.

This protects both parties and avoids misunderstandings later.

Legal advice is often recommended to ensure the agreement is structured correctly.

4. Estate Planning and IHT Considerations

Unlike gifting, a loan remains part of the parents’ estate.

This can be beneficial or restrictive, depending on the client’s wider objectives.

In some cases, a loan may later be forgiven, which can then trigger different planning considerations.

5. Family Dynamics

This is often overlooked.

Clarity around expectations, repayment terms, and fairness between family members is important to avoid future issues.

Where This Fits in Holistic Planning

Family loans sit alongside other common strategies such as:

• Gifting deposits
• Linked savings arrangements (Family Offset)
• Using property as security (cross charge)

Each approach has different implications for:

• Control of capital
• Risk exposure
• Tax and estate planning
• Mortgage structure

The right solution depends on the client’s overall position, not just the immediate property transaction.

When Might This Be Suitable?

Family loans can work well where:

• Parents want to support a purchase but retain access to capital long term
• There is a clear understanding of repayment expectations
• Mortgage affordability is not adversely impacted
• The arrangement aligns with wider estate and financial planning

They may be less suitable where simplicity, tax efficiency, or lender flexibility is the primary objective.

Final Thoughts

Helping family is rarely just about the deposit.

It is about balancing support with long-term financial security.

Family loans can provide a structured way to do this, allowing parents to assist without permanently giving up capital.

However, they require careful coordination.

Mortgage advice, legal structure, and financial planning all need to align to ensure the arrangement works both now and in the future.

Important Information

Your home may be repossessed if you do not keep up repayments on your mortgage.

We do not advise on tax or investments. For this type of advice, please refer to a suitably authorised and regulated adviser.

Symmonds de Lacey is a trading name of Easy Street Financial Services Limited which is authorised and regulated by the Financial Conduct Authority.

Information correct at time of writing – May 2026.