Giving while living: How the Bank of Mum and Dad is reshaping deposits, affordability and advice

Frozen inheritance tax (IHT) thresholds, rising receipts and stubborn affordability pressures are accelerating a clear trend in the mortgage market: parents and grandparents are no longer waiting for wealth to cascade down after death. Instead, they’re deploying it now – through gifted deposits, early inheritance and family loans – to get younger generations on the ladder.

Brokers say this “giving while living” approach has shifted from occasional feature to structural force, particularly in higher-priced areas and among younger first-time buyers.

From ‘nice to have’ to near‑necessity

For Katherine Stagg, founder of Stagg Mortgages, the change has been both obvious and sustained.

“A few years ago, gifted deposits or early inheritance featured in perhaps a third of our first-time buyer and second-stepper cases,” she told Mortgage Introducer. “Now, I’d say it’s closer to half—and in some cohorts (younger first-time buyers in higher-priced areas) it feels more like the norm than the exception.”

Nicholas Mendes, mortgage technical manager at John Charcol, sees the same pattern. “Gifted deposits and early inheritances are appearing more frequently in transactions than they did even a few years ago, as families respond to frozen thresholds and ongoing affordability pressures by choosing to support earlier,” he noted.

By contrast, some brokers report a more stable picture.

“In my experience, it’s broadly the same as it was a couple of years ago,” said JMS' India Mustafa. “Gifted deposits have been a feature of the market for a long time, particularly for first-time buyers, and while affordability pressures remain high, I wouldn’t say there’s been a dramatic increase recently.”

The drivers are familiar: a basic IHT nil‑rate band frozen since 2009, rising house prices, tighter affordability and a widening gap between wages and deposits. For many families, helping children buy sooner – and in the right location – feels like the only realistic route.

A thin grasp of complex rules

While the behavioural trends are clear, the rules that govern them are not.

“Most clients have a headline awareness of inheritance tax and the ‘seven-year rule’, but the detail is often hazy,” said Stagg.

Common misunderstandings she sees include the assumption that all gifts are automatically tax-free, regardless of size or timing, treating the annual exemption as a vague “allowance” rather than a strict per‑donor, per‑tax‑year limit, overlooking that regular gifts from surplus income can be exempt if properly structured and evidenced – a powerful tool for planned “giving while living” – and believing a Potentially Exempt Transfer (PET) is somehow outside the estate straight away, instead of only falling out completely after seven years.

Mendes agrees that knowledge is patchy and often over‑simplified.

“While the seven-year rule is widely recognised, there is often far less awareness of annual exemptions, gifts from surplus income, or how gifting decisions interact with longer-term financial resilience,” he said. “A common and potentially risky assumption is that a gift automatically becomes ‘safe’ after seven years, without sufficient consideration of how changing circumstances might affect the donor.”

Mustafa sees similar gaps in understanding.

“Generally speaking, most don’t fully understand the gifting rules,” she said. “Many assume that if money comes from family, it’s automatically straightforward. The tax misunderstandings can create risk for families if they don’t seek proper guidance early on.”

On the broker side, this creates a delicate balance. Advisers are not tax planners, but they are often the first professionals to hear about a planned gift – and the ones who see where generosity and misunderstanding start to overlap.

Stagg says risky “casual assumptions” are common: “We see parents gifting large sums without any parallel estate planning advice, or multiple siblings being treated differently without documentation, which can store up conflict later.”

Where lender policy collides with family reality

On paper, lenders are comfortable with straightforward gifted deposits from close family members. In practice, the human reality is rarely so neat.

“Lenders want a ‘pure’ gift—no expectation of repayment, no beneficial interest, no right to live in the property,” Stagg explained. “But that can jar with how families actually think about the money.”

Several fault lines recur:

• Documentation and language: If a parent casually describes support as “a loan between us” during a fact‑find or on a gifted deposit form, some lenders will treat it as a commitment and factor it into affordability – or decline altogether. “We spend a lot of time clarifying with families whether they truly mean a gift or a loan, because the wording matters,” Stagg said.

• Source of funds and AML: Where wealth has been built over decades, or is spread across accounts and investments, donors are often surprised by how intrusive anti‑money laundering and source‑of‑funds checks feel. Without early expectation‑setting, that can slow or derail cases.

• Complex structures: As support becomes more formal – via loans, declarations of trust or equity shares – the pool of willing lenders shrinks. “A clean gifted deposit typically opens up the widest product range and the smoothest underwriting,” Stagg noted. “Once it becomes a loan or shared equity, we’re into a smaller subset of lenders, more detailed underwriting, and sometimes higher rates or lower maximum borrowing.

Mustafa broadly agrees that lenders are aligned with real‑world practice, but says the execution can still be painful.

“Lenders are generally aligned with what’s happening in the real world, but friction points do still arise,” she said. “The biggest issues tend to be around documentation and clarity of intent — lenders need absolute certainty that a gift is non-repayable and that they have no beneficial interest in the property.”

From ‘no strings’ gifts to structured support

Both brokers say the old model of a simple, unconditional gift is being steadily replaced by more structured arrangements.

“We are definitely seeing more families wanting some form of structure rather than a completely open-ended gift,” said Stagg.

Two main models are emerging. The first is private family loans, which appeal where parents are uncomfortable with an outright gift, or where siblings need to be treated equitably. However, most lenders treat such loans as financial commitments, reducing borrowing capacity and narrowing product choice. Families are often surprised to learn that what feels “safer” to them can make the mortgage materially harder.

The second is equity sharing and beneficial interests. This emerges because parents increasingly want their contribution reflected in ownership – for example through a declaration of trust, or a more formal family arrangement recording shares. That can make sense from a fairness viewpoint, particularly where large sums are involved, but it adds complexity for underwriting. Many lenders insist that the deposit is an unconditional gift with no retained interest.

Mustafa, however, is less convinced that these arrangements represent a wholesale shift in the market.

“From what I’m seeing, the balance between straightforward gifts and more formal loans or equity‑sharing looks much the same as it did a few years ago,” she said. “Where a contribution is treated as a loan rather than a gift, it inevitably adds complexity – it can reduce lender choice, affect affordability calculations, and trigger additional underwriting checks – so many families still default to a clean gift if they can.”

For brokers, that means a lot of upfront education: explaining the trade‑off between control and flexibility, and between perceived fairness within the family and lender appetite.

A broader advisory role for brokers

The rise of “giving while living” is pulling brokers deeper into intergenerational conversations – whether they like it or not.

“Overall, the direction of travel is clear: frozen IHT thresholds and rising receipts are nudging families to think about intergenerational wealth transfer much earlier, and property is the obvious focal point,” said Stagg. “But the tax rules, lender criteria and family dynamics don’t always line up neatly. A big part of our role now is less about ‘finding a rate’ and more about translating between three worlds—family intentions, tax reality and lender policy—so that support can be structured in a way that’s both emotionally fair and technically workable.”

Mendes echoed the note of caution. While supporting children earlier can be hugely positive, he warns that the long‑term position of the donor can be overlooked.

“There’s often not enough consideration of how the gift interacts with the donor’s own financial resilience,” he said. “Circumstances change – health, care needs, income – and what felt comfortable at the point of gifting may look very different a few years down the line.”