Why lenders distinguish gifts from loans so strongly
From the lender's perspective, the question that matters is: does this borrower have unconditional control of the deposit money, and is the borrower's monthly income free of any obligation to repay the deposit source? A gift satisfies both — the money is the borrower's, with no future claim by the donor. A loan satisfies neither: the parent retains some claim on the funds, and the borrower's monthly income must service the repayment alongside the mortgage.
This isn't theoretical. Repaying a £30,000 parental loan at £400 a month reduces the borrower's available monthly income by £400 — which the lender's affordability calculation captures by reducing the maximum mortgage offered. The mortgage shrinks by far more than £30,000, because affordability is calculated on multiples of disposable income. A £400 a month commitment can reduce mortgage capacity by £60,000–£90,000 over a 25-year term.
The gifted deposit alternative
If parents are willing to provide funds, a gift is almost always the more efficient route. A gifted deposit requires the donor to sign a "gifted deposit letter" confirming: the amount, the relationship, that the gift is unconditional and unrepayable, and that the donor will not retain any interest in the property. Lenders accept this letter without further scrutiny in most cases.
The gifted deposit letter is templated and routine — most solicitors and brokers have one ready. The lender will typically also require evidence of the donor's funds: a recent bank statement showing the gift amount, and confirmation the donor has the means to make the gift without it being itself a loan.
The structural difference matters more than it sounds. A £40,000 gift may allow a £360,000 mortgage on a £400,000 home; the same £40,000 as a loan with £450 monthly repayments may collapse the affordability calculation to a £270,000 mortgage, restricting the buyer to a £310,000 home. The parents have parted with the same amount of money in both scenarios.
Which lenders will consider a parental loan
A small number of specialist lenders will consider applications where the deposit is partly loaned by a family member, provided the loan terms are clearly documented and the repayments are factored into affordability. Family Building Society is the most established name in this segment — their lending model is specifically designed around family-supported borrowing.
Saffron Building Society, Mansfield Building Society and Hinckley & Rugby will also consider loaned deposits case-by-case. The common requirements: a formal loan agreement, a clearly defined repayment schedule, evidence of the parent's ability to wait if the borrower's circumstances change, and affordability calculations that include the loan repayment as a committed outgoing.
Most mainstream high-street lenders — Halifax, Nationwide, Santander, NatWest, HSBC, Barclays — will decline applications where the deposit is loaned by a family member. They typically ask for a gifted deposit declaration; if the borrower says it's a loan, the application stops there.
The JBSP alternative for boosting affordability
If parents want to help but don't want to part with capital, a JBSP (Joint Borrower Sole Proprietor) mortgage is usually the better option. The parent goes on the mortgage liability — boosting affordability via combined income — but stays off the property title, avoiding stamp duty surcharges and keeping ownership cleanly in the buyer's name.
JBSP is particularly suited to scenarios where the buyer has saved a reasonable deposit but income alone won't support the mortgage they need. It avoids the lender-acceptance problem of loaned deposits entirely. See our JBSP mortgage calculator guide for the full walkthrough.
Family offset mortgages as a hybrid
A family offset mortgage is a niche but useful third option. The parent deposits cash into an offset savings account linked to the borrower's mortgage. The offset balance reduces the interest payable on the mortgage (saving the borrower money) and the parent retains the cash — they can withdraw it at any time, subject to any agreed terms.
Family Building Society and a handful of other lenders offer this structure. It works particularly well where parents have £30,000–£100,000 in cash savings they want to deploy productively without giving away permanently. The downside is that the linked offset savings earn no interest, so the parent must weigh the saved mortgage interest (which benefits the child) against the deposit interest they're forgoing.
Tax considerations for parents
The tax position depends on the structure. A genuine gift is not taxable for either party at the point of giving. However, if the parent dies within 7 years of making the gift, it may form part of their estate for inheritance tax purposes under the 7-year tapering rule. Larger gifts (over £3,000 a year per donor) start using the parent's nil-rate band for IHT.
An interest-bearing loan generates taxable income for the parent, who must declare interest received on their self-assessment. An interest-free loan doesn't generate tax for the parent but may be considered partly a gift by HMRC if material — taking advice on larger amounts is sensible.
None of this constitutes tax advice — these are general patterns. Always speak to an accountant or tax adviser for sums over £30,000 or where the structure is complex.
Practical recommendation for most families
For most parents and children sitting down to plan the deposit conversation, the cleanest options are: a straight gift (if the parent can afford to part with the money permanently), a JBSP mortgage (if they want to support without parting with capital), or a family offset (if they have cash they want to retain control of). A loaned deposit, while emotionally appealing as "fair," is usually the worst of the available structures from a mortgage perspective.
Your home may be repossessed if you do not keep up repayments on your mortgage. First Rung Now is not FCA authorised or regulated; we introduce consumers to FCA-regulated mortgage brokers. Nothing in this article is financial or tax advice.