Family financial support has long played a central role in how first-time buyers bridge deposit gaps.
However, these gifted deposits often cause friction for lenders and brokers, and many high street lenders may still expect some personal contribution, depending on the case and policy, creating a growing disconnect. There is a clear affordability barrier across the UK market, with the average deposit now standing at £23,000.
As buyers continue to rely on family support to fulfil the dream of purchasing their first home, many are moving towards niche mortgage solutions such as Islamic finance; not for religious reasons, but because of the more flexible treatment of deposits and financing criteria.
Gifted, yet rarely accepted
For many young people, or individuals without financial support, saving up to build a deposit can be extremely overwhelming, and the pressure can detrimentally delay the house buying process, forcing individuals to rent for longer periods of time. There are a number of different buyer profiles in the market, ranging from traditional savers to supported buyers and complex earners, all wanting to purchase their first home. Around half (43%) of young people buying their first home state that financial support from family is required, highlighting the huge value of gifted deposits for aspiring first-time homeowners. Today’s determined homeowners do not all fall under the same profile, and deposit requirements are making it harder to get onto the property ladder, creating persistent barriers to homeownership.
Due to the financial risk, gifted deposits can create underwriting and documentation requirements, and some lenders may require personal contribution or apply tighter criteria depending on the case. Lenders need to be assured that first-time buyers can manage their financial plan over the term of the mortgage. For banks, even the smallest contribution shows that a buyer can take accountability when it comes to making repayments and handling other expenses once they move into their new home.
Due to the rigid state of today’s market, individuals have begun to actively look for alternative finance options, like Islamic finance, that may be able to consider gifted deposits and more complex circumstances, depending on the provider’s criteria.
Fragmented guidelines, frustrated lenders
Clearer, standardised gifted deposit structures could massively reduce friction for lenders and brokers assisting first-time buyers. There are several key completion metrics that can take a while to validate, and failure to disclose gifted deposits early on can trigger substantial delays further down the line. A uniform approach, outlining acceptable borrower contributions and verification procedures would make deposit applications much easier to access. With a streamlined system, first-time buyers could obtain support from their family, lessen financial pressures and maintain lender confidence.
The first-time buyer market is evolving, lender expectations are changing and individuals are moving towards niche mortgage solutions, with Islamic finance becoming an increasingly relevant option in that conversation. This system is founded on fairness, transparency and social responsibility. A home purchase plan (HPP) is an alternative to a mortgage used in Islamic finance, which avoids interest and prioritises co-ownership. Islamic finance providers, such as StrideUp, offer HPPs that don’t have any minimum income requirements, which allows them to reach a broader customer base.
This gives customers a co-ownership-based structure, with monthly payments made up of rent and acquisition payments. Structured frameworks like an HPP can help lessen the unnecessary exclusion of otherwise creditworthy buyers.