For many aspiring homeowners, especially first time buyers, saving for a deposit can be one of the most challenging aspects of buying a property. Gifted deposits—funds given by family members or loved ones to help cover the deposit—have become an increasingly popular solution. However, understanding how gifted deposits work and the steps involved in using one when applying for a mortgage is crucial.
What Is a Gifted Deposit?
A gifted deposit is money given to a homebuyer, usually by a family member, to help them purchase a property. The key factor that distinguishes a gifted deposit from a loan is that it does not need to be repaid.
The most common sources of gifted deposits are:
- Parents or grandparents: Often referred to as the “Bank of Mum and Dad.”
- Other family members: Such as siblings, aunts, or uncles.
- Close friends: In rare cases, lenders may allow non-family members to gift funds.
How Lenders View Gifted Deposits
Mortgage lenders widely accept gifted deposits, but they require evidence to ensure the funds are genuinely a gift and not a loan. This is important because additional debt could affect your ability to repay the mortgage.
What You’ll Need:
Identification Documents: Lenders often ask for proof of identity from the donor to comply with anti-money laundering regulations.
A Gifted Deposit Letter: This must confirm:
-The relationship between the donor and the buyer.
-The amount being gifted.
-A statement confirming the money is a gift and not a loan.
-That the donor has no interest in the property.
Proof of Funds: The donor may need to provide bank statements showing the source of the funds.
Benefits of Using a Gifted Deposit
Easier Entry into the Property Market: It can help you secure a property sooner, rather than having to save for a long period in order to build a deposit.
Increased Mortgage Options: A larger deposit can improve your Loan-to-Value (LTV) ratio, potentially unlocking better mortgage rates.
Reduced Repayment Costs: A higher deposit often means smaller monthly repayments.
Things to Keep in Mind
Legal Considerations
In some cases, the donor might want to seek legal advice to ensure the gifting process is clear and avoids future disputes. For example, if the money is coming from parents, they may want assurances about how the property is managed in case of divorce or other changes in circumstances.
Tax Implications
Although gifted deposits are not directly taxed in the UK, they may be subject to inheritance tax if the donor passes away within seven years of gifting the funds and their estate exceeds the inheritance tax threshold.
Lender Requirements Vary
Not all lenders have the same policies on gifted deposits. Some may require the donor to be an immediate family member, while others might accept gifts from more distant relatives or friends. Working with a mortgage broker can help you find the best lender for your situation.
How Mortgage Links Can Help
At Mortgage Links, we understand that every buyer’s situation is unique. If you’re considering using a gifted deposit, we can:
- Help you understand the requirements for your chosen lender.
- Assist in preparing the necessary documentation but an example letter template is available here.
- Find mortgage options that best suit your needs.
Gifted deposits can make homeownership more accessible, but navigating the process can feel overwhelming. Let us simplify it for you—get in touch today to explore your options.
