Gifted Deposit Policy: What Lenders Look For
When you’re using a gifted deposit to buy a home, mortgage lenders have strict policies in place to ensure the process is transparent and above board. One of the first things a lender will ask for is a gifted deposit letter. This signed letter must clearly state that the deposit is a genuine gift, not a loan, and that the gift giver has no expectation of repayment or legal interest in the property.
Most lenders will also want to confirm the relationship between the person giving the gift and the buyer—typically preferring immediate family members such as parents, grandparents, or siblings.
To satisfy anti-money laundering regulations, lenders will require recent bank statements from the gift giver to show the source of the gifted funds. They’ll also check that the money isn’t coming from an unsecured repayable loan, as this could affect the buyer’s affordability calculations and the overall mortgage application.
By ensuring all documentation is in order and the gifted deposit meets lender criteria, buyers can improve their chances of securing the right mortgage deal and moving forward with their property purchase smoothly.
Tax Implications of Gifted Deposits
Before gifting or receiving a deposit, it’s important to understand the potential tax implications, especially regarding inheritance tax. If the gift giver passes away within seven years of making the gift, the recipient may need to pay inheritance tax on the gifted deposit, depending on the total value of the estate. However, if the gift giver survives for more than seven years after gifting the deposit, the gifted amount is usually exempt from inheritance tax.
Gift givers can also take advantage of the annual £3,000 tax-free gift allowance, which allows them to gift up to this amount each year without any inheritance tax implications. For larger gifts, or if you’re unsure about your specific situation, it’s wise to seek professional tax advice to ensure you’re making informed decisions and to avoid unexpected tax liabilities.
Benefits of Using a Gifted Deposit
| Benefit | Explanation |
|---|---|
| Smaller Mortgage Needed | A larger deposit means borrowing less, reducing monthly repayments. |
| Better Interest Rates | A bigger deposit can lead to better borrowing terms, such as lower LTV mortgage rates and lower mortgage payments. |
| Faster Route to Homeownership | Helps buyers get on the ladder without years of saving. |
| No Need for a Loan or Credit | Unlike a personal loan, there’s no debt obligation tied to the deposit. |
| Can Help With Stamp Duty Thresholds | May keep purchase under thresholds for higher stamp duty bands. |
Things to Watch Out For
- Must Be a True Gift: Any conditions or expected repayments will usually lead to mortgage rejection.
- Gifter Due Diligence: Some giftors may not be comfortable sharing financial details or providing AML evidence. The gift giver should also be financially solvent to ensure they can afford to make the gift without financial strain.
- Inheritance Considerations: A gifted deposit is usually excluded from inheritance tax if the giftor survives for 7 years.
- Legal Advice: In rare cases, especially where large amounts are involved, legal advice for both parties may be recommended.
Gifted Deposit Protection: Safeguarding Your Gift
Gifting a deposit to help a family member or friend onto the property ladder is a generous act, but it’s important to protect your gift in case circumstances change. A gifted deposit declaration or a deed of trust can provide clarity by formally stating that the deposit is a gift, not a loan, and that the gift giver has no stake in the property.
This documentation helps prevent misunderstandings or disputes in the future, especially if relationships change or if the property is sold.
For added peace of mind, some gift givers choose to set up a trust or seek legal advice to ensure their intentions are clearly documented and legally binding.
Alternatives to Gifted Deposits
If a gifted deposit isn’t an option, there are still several ways to raise a mortgage deposit and achieve your goal of homeownership. Some lenders offer mortgage products with lower deposit requirements or more flexible eligibility criteria, making it easier for buyers with limited savings to get on the property ladder.
Government-backed schemes, such as Help to Buy or Shared Ownership, can also provide valuable support for first time buyers and those struggling to save a large deposit.
Additionally, saving over a longer period, exploring help from other family members, or considering joint applications with friends or relatives can all be viable alternatives.
It’s important to research all available options and seek professional advice to find the right mortgage for your circumstances.
Conclusion
Gifted deposits are a common and effective way to support property purchases in the UK, especially for first time buyers. Lenders are generally open to this arrangement when it comes from a close family member, and with the right documentation and planning, it can be a smooth process.
Whether you’re a parent wanting to help your child, or a buyer exploring your options, working with an experienced mortgage broker ensures you’re guided through lender requirements and can find the right lender for your situation.
Speak to a Mortgage Broker
You can speak to one of our specialist mortgage brokers who would be able to guide you through the process. They will advise if there is a lender available and the maximum loan amount based on your circumstances. We are a whole of market mortgage brokerage with access to all lenders. Call us on 01332 470400 or complete the form with your details for us to give you a call back.
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FAQs
Can a gifted deposit come from a friend?
Some lenders may accept gifted deposits from friends, but most prefer close family members. It’s important to check each lender’s policy before proceeding.
Does a gifted deposit affect my mortgage eligibility?
Yes, but in a positive way. A larger deposit—whether saved or gifted—can improve your loan-to-value ratio, giving you access to better mortgage deals.
Will I have to pay tax on a gifted deposit?
There is no immediate tax on receiving a gifted deposit, but inheritance tax may apply if the donor passes away within seven years of making the gift.
How do I prove a deposit was gifted?
You’ll need a signed gifted deposit letter, ID and address documents from the donor, and proof of funds showing the transfer and source.
Can I use a gifted deposit with a government scheme?
Yes, most government schemes such as Help to Buy or Shared Ownership allow the use of gifted deposits, as long as lender requirements are met.
Ready to Take the First Step?
Whether you’re a first-time buyer, remortgaging, or moving home, bad credit doesn’t have to hold you back.
Understanding credit scoring can help you prepare for a mortgage application. You can speak to one of our specialist mortgage brokers who would be able to guide you through the process. They will advise if there is a lender available and the maximum loan amount based on your circumstances. We are a whole of market mortgage brokerage with access to all lenders.
