Credit Score Basics > What to Consider When Borrowing from Parents for a Deposit

What to Consider When Borrowing from Parents for a Deposit

Wollit Team2 minute read · Updated 21st July 2025

Getting onto the property ladder is tough in the UK. With house prices rising faster than salaries, many people are turning to the "Bank of Mum and Dad" for help. If you're thinking about borrowing from your parents for a house deposit, here's what you need to know.

Why People Borrow from Parents

The Bank of Mum and Dad has become a major player in the UK property market, helping thousands of people buy their first home each year. This family support typically covers:

House deposit contributions
Help with mortgage affordability
Bridging the gap between savings and property prices
Reducing reliance on high mortgage amounts

How to Ask Your Parents for a Loan

Having this conversation requires preparation and honesty. Here's how to approach it:

Before the conversation:

Work out exactly how much you need
Calculate what you can afford to repay monthly
Research the property market you're targeting
Prepare a simple repayment plan

During the conversation:

Be completely transparent about your finances
Explain your homebuying timeline
Discuss how you'll repay the money
Talk about what happens if your circumstances change

Setting Up a Family Loan Agreement

Even with family, you need a proper agreement. This protects everyone and prevents future arguments.

Your agreement should include:

The exact loan amount
Whether it's interest-free or includes charges
Monthly repayment amount and schedule
What happens if you can't make payments
Any security arrangements
Consequences for missed payments

Why this matters:

Keeps relationships healthy
Provides legal protection
Helps with mortgage applications
Prevents misunderstandings

What Your Mortgage Lender Needs to Know

Be completely honest with your mortgage lender about family loans. They'll need to understand:

Whether it's a gift or a loan
Repayment terms and monthly amounts
How it affects your affordability
Proof of the arrangement

Important: Some lenders factor family loan repayments into their affordability calculations, which could affect how much you can borrow.

Tax Implications You Should Know

Family loans can have tax consequences for both parties:

For you (the borrower):

No tax on borrowed money
Possible tax implications if the loan is written off

For your parents (the lender):

Must declare any interest as income
Large gifts might affect inheritance tax planning
Written-off loans could be considered gifts

Tip: Consider speaking to a tax advisor about your specific situation.

Impact on Your Credit Score

Family loans typically don't appear on your credit report, which means:

They won't directly hurt your credit score
They won't help build your credit history either
You'll still need to demonstrate creditworthiness for your mortgage

Since building good credit is crucial for getting the best mortgage rates, consider using Wollit to strengthen your credit profile while preparing for homeownership.

Different Repayment Options

Family loans offer more flexibility than commercial lenders:

Fixed payments: Same amount each month until paid off

Graduated payments: Start low and increase with your income

Lump sum: Pay back when you remortgage or sell

Flexible: Adjust payments based on your financial situation

Choose what works for your budget and doesn't strain your relationship.

Before You Decide

Consider these questions before borrowing from parents:

Can you afford mortgage payments plus family loan repayments?
How might this affect your relationship?
What happens if you lose your job or face financial difficulties?
Are there other ways to raise a deposit?

If you're worried about qualifying for a mortgage due to limited credit history, improving your creditworthiness first might be worth considering. Check your mortgage affordability and explore options for building credit, even if you have poor credit history.

Key Takeaways

Borrowing from parents can be an excellent way to get onto the property ladder, but it requires:

Proper planning: Know exactly what you need and can afford
Clear agreements: Put everything in writing
Open communication: Be honest with both family and lenders
Professional advice: Consider tax and legal implications
Credit building: Maintain good financial habits for your future

With the right approach, family financial support can help you achieve homeownership while maintaining healthy relationships and building a strong financial foundation for the future.