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Why Buying a House From Your Parents Is Different

Buying a property from your mum and dad looks simpler than buying on the open market. There is no chain, no competing bidders, no estate agent negotiating against you, and the price is whatever the family agrees. In practice the mortgage side is more complicated, not less, because the moment a lender sees a transaction between connected parties it applies a different set of rules.

The good news is that these transactions are completely normal and lenders deal with them every week. What causes problems is finding out about the extra requirements halfway through an application rather than before it is submitted. This guide sets out what actually happens, in the order it happens, so you can have the right conversations with your parents, your conveyancer and your lender from the start.

Needing Advice is an independent, FCA-regulated mortgage brokerage, and family purchases like this are a regular part of our work. Everything below is general guidance rather than personal advice — for that, a no-obligation conversation with an adviser is the sensible next step.

Concessionary Purchase: How Lenders Treat the Discount

When parents sell to a child for less than the property is worth, the industry calls it a concessionary purchase and the discount is called gifted equity. This is the single most important concept on the page, because it changes how your deposit works.

The discount can replace your deposit

On an ordinary purchase you bring cash. On a concessionary purchase the difference between the market value and the price you pay is treated as equity gifted to you at completion, and most lenders will accept it in place of some or all of a cash deposit. If the surveyor values the property at £300,000 and your parents sell it to you for £240,000, the £60,000 discount represents a 20% stake and the lender assesses the loan against the £300,000 figure. You could, in that example, borrow £240,000 against a £300,000 property without putting in cash of your own.

Valuation drives the loan, not the price

This is the reverse of a normal purchase. Usually a lender lends against the lower of price or valuation. On a concessionary purchase most lenders switch to the open market valuation, because the discount is the whole point of the arrangement. The surveyor’s figure therefore matters enormously — if it comes back lower than the family expected, the effective deposit shrinks and the loan-to-value moves against you.

Lender criteria vary more than on any other case type

Some lenders accept any level of discount. Some cap the discount they will recognise. Some require a minimum cash contribution from you on top of the gifted equity. A number will not consider concessionary purchases at all. The same case can be a straightforward yes at one lender and an outright decline at another, with no reflection on your income or credit file. This is why lender selection, not application strength, is usually what decides these cases.

What must be evidenced

Expect to provide a signed gifted equity letter from both parents confirming three things: that the discount is a gift, that it is non-repayable, and that they retain no beneficial interest in or right of occupation over the property. Lenders will also want proof of your parents’ identity and address. Many require your parents to take independent legal advice from a separate solicitor, so that nobody can later claim they were pressured into selling below value. Budget time for this — arranging separate representation is a common cause of delay.

A sale between family members is a real sale. It needs a contract, searches, Land Registry transfer and the same conveyancing process as any other purchase. The differences sit around the edges.

Separate solicitors

You and your parents will usually each need your own conveyancer. A single firm acting for both sides creates a conflict of interest that most lenders will not accept on a concessionary purchase, and if your parents are also taking independent advice on the gift, a third party may be involved. Tell your conveyancer at the outset that this is a family transaction below market value, because it changes the searches and declarations they run.

Documents you will encounter

  • Gifted equity letter — signed by your parents, confirming the discount is a non-repayable gift with no retained interest.
  • Independent legal advice certificate — confirming your parents received advice from their own solicitor.
  • Deed of trust — only if more than one person is buying, or if contributions are unequal and you want them recorded. Read our guide to joint mortgages if that applies.
  • Standard conveyancing pack — contract, TR1 transfer, searches, and the usual property information forms.

Solvency and the timing question

If your parents have outstanding debts, selling an asset below value can, in a genuine insolvency, be challenged as a transaction at an undervalue. This is rarely an issue for ordinary family sales, but it is a question worth putting to their solicitor rather than assuming. The same applies if either parent is in poor health or already receiving care — see the section on deprivation of assets below.

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Stamp Duty When Buying From a Family Member

Stamp Duty Land Tax is the point where most people are given wrong information by well-meaning relatives, so it is worth being precise.

SDLT is normally charged on what you actually pay

For a straightforward sale at an agreed price, SDLT is calculated on the consideration — the money that changes hands — not on the market value. In the £300,000 property sold for £240,000 example, SDLT would normally be assessed on £240,000. The gift element is not consideration.

Where that changes

There are important exceptions. If you take on an existing mortgage as part of the deal, the debt assumed counts as consideration and is taxable even though no cash moved. If you already own another property anywhere in the world, the higher rates for additional dwellings can apply to the whole purchase. And if the transfer is a pure gift with no payment at all but a mortgage is attached, the outstanding balance is the chargeable amount.

First-time buyer relief

Buying from your parents does not, in itself, stop you claiming first-time buyer relief — the test is whether you have ever owned a major interest in a residential property anywhere, not who you are buying from. If you have previously been on a deed or inherited a share, that will usually disqualify you even if you never lived there.

SDLT thresholds and rates are set by government and change from time to time, and the rules differ in Scotland (Land and Buildings Transaction Tax) and Wales (Land Transaction Tax). Your conveyancer should confirm the figure in writing before you commit to a price. This is a conveyancing question, not a mortgage question, and it should be answered before the family agrees the number — not after a mortgage offer has been issued.

Capital Gains Tax and Your Parents’ Position

The tax that catches families out is usually not yours — it is your parents’.

If the property has been their only or main residence throughout their ownership, Private Residence Relief will normally mean there is no Capital Gains Tax to pay. If it has not — if it was a rental, a second home, an inherited property, or somewhere they lived only for part of the time — CGT may be due. Critically, because you are connected persons, HMRC calculates the gain on the market value of the property, not the discounted price your parents accepted. They can therefore face a tax bill on a gain they did not receive in cash.

There are reporting deadlines for residential property disposals, and they are short. Your parents should speak to an accountant before agreeing to the sale, not after completion. A broker cannot advise on this and neither can a conveyancer in most cases.

Deprivation of Assets and Care Fees

If a parent may need residential or domiciliary care in future, selling the family home to a child at a discount can be treated by the local authority as deliberate deprivation of assets when means-testing for care funding. There is no fixed time limit on how far back a council can look, and the test is about intention rather than a date.

This does not mean the transaction is wrong or should not go ahead. It means the reason for it should be genuine and documented — for example, a long-planned family arrangement, or a parent downsizing for their own reasons — and the family should take specialist legal advice before proceeding if care is a realistic prospect. Handled openly this is manageable. Discovered later, it is not.

Mortgage Options for Buying Property From Parents

Standard residential mortgage with gifted equity

The most common route, and the one this whole guide is built around. You live in the property, your parents move out, and the discount does the work of a deposit. Widely available, subject to the lender-criteria variation described above.

Buying with a cash deposit as well

If the discount is modest, you may need to add your own savings or a separate gifted deposit. Lenders will want to see the source of any cash going in, with the usual bank statements and gift letters.

Joint borrower sole proprietor and family support products

If your income alone will not stretch far enough, some lenders allow a parent to support the application without going on the title deeds. Our guides to mortgages with mum and dad and how your family can help you buy a house cover the options, including the SDLT consequences of a parent being named on the deeds.

Where siblings are involved

If the property is being bought from parents but siblings have or expect a share, that is a different structure again and usually needs a deed of trust alongside the mortgage. See how to buy out siblings from an inherited house and our guide to a mortgage to buy out siblings on inherited property.

If Your Parents Want to Keep Living There

This is the arrangement that most often stops an application dead, and it is worth stating plainly: most mainstream residential lenders will decline where the seller continues to occupy the property after completion.

The reason is legal rather than personal. A residential mortgage is granted on the basis that the borrower occupies the property. If a former owner remains in place, they may acquire rights of occupation that sit ahead of the lender’s security, which affects the lender’s position if the mortgage is ever in default. Lenders manage this by requiring an occupier’s waiver, by declining, or by treating the case as a different product entirely.

The workable routes are usually a specialist lender who explicitly permits it, a family buy-to-let arrangement (which is a regulated product when letting to a relative and is not available from every buy-to-let lender), or a properly documented occupation agreement with independent advice on both sides. All three need to be identified before an application, because switching route mid-process means starting again.

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Key Steps, In Order

The order matters. Most of the delay in these cases comes from doing step five before step two.

  1. Get an independent view of the market value. Not a portal estimate — ask two or three local estate agents for a written appraisal, or pay for a RICS valuation. Every figure that follows depends on this one, and the family guessing low creates problems with the lender’s surveyor later.
  2. Agree the discount and write down why. Decide the price, and record the reason for the discount in plain language. This becomes the basis of the gifted equity letter.
  3. Your parents speak to an accountant about CGT, and a solicitor if care funding is a possibility. Before anything is agreed in principle, not after.
  4. Speak to an independent broker about lender criteria. Establish which lenders accept your discount level, your parents’ occupancy intentions and your income profile. This is where a case is won or lost.
  5. Get your conveyancer’s written SDLT figure. Confirm whether higher rates or first-time buyer relief apply to you specifically.
  6. Instruct separate solicitors and arrange independent advice for your parents. Start this early; separate representation is a common bottleneck.
  7. Submit the application with the gifted equity letter ready. Having the documents prepared in advance is the difference between a two-week and a six-week case.
  8. Survey, offer, completion. If the valuation comes back below expectations, go back to step four rather than pressing on.

How a Broker Can Help

Because criteria differ so widely on concessionary purchases, the practical value of independent advice here is higher than on an ordinary purchase. A whole-of-market, FCA-regulated broker can tell you, before you apply, which lenders will accept your specific discount level, your parents’ occupancy plans, and your income and credit profile — and which will not. That single piece of information prevents the most common outcome in these cases, which is a decline that had nothing to do with affordability.

A broker can also spot the structural problems early: a parent intending to stay, siblings with an expectation of a share, an existing mortgage that needs redeeming, or a discount large enough to narrow the lender pool. None of these are dealbreakers if they are known at the start.

Damian Youell and the team place family and concessionary purchase cases regularly and can talk through your parents’ documents with them directly if that is easier. Advice is independent, whole of market and on a no-obligation basis. You can also meet the wider advice team.

Frequently Asked Questions

Can I buy my parents’ house below market value?

Yes. It is called a concessionary purchase and most lenders treat the discount as gifted equity that can replace some or all of your deposit. Your parents will need to sign a gifted equity letter confirming the discount is a non-repayable gift with no retained interest in the property.

Do I still need a deposit?

Often not. If the discount is large enough, lenders will usually accept it in place of cash, because the gifted equity gives them the same loan-to-value protection. Some lenders still want a small cash contribution from you, which varies by lender.

Can my parents keep living in the house after I buy it?

Not on a standard residential mortgage. Most mainstream lenders decline where the seller continues to occupy, because it changes the legal and repossession position. This route needs a specialist lender or a family buy-to-let arrangement, with independent legal advice on both sides.

Do I pay Stamp Duty on the discounted price or the market value?

Generally on what you actually pay. The position changes if you take on an existing mortgage, or if you already own another property, where the higher rates can apply. Get the figure in writing from your conveyancer before agreeing a price.

Will my parents pay Capital Gains Tax?

Not if the property has been their only or main residence throughout. If it has not, CGT may be due, and because you are connected persons HMRC calculates the gain on market value rather than the price they accepted. They should speak to an accountant before agreeing to sell.

How much can I borrow on a concessionary purchase?

Most lenders assess the loan against the surveyor’s open market valuation rather than the discounted price, so the valuation figure is what determines your borrowing. Affordability is then assessed on your income in the normal way.

Does buying from my parents affect first-time buyer relief?

Not by itself. The test is whether you have ever owned a major interest in a residential property anywhere in the world, not who you are buying from. Previously being named on a deed or inheriting a share will usually disqualify you.

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