Mortgage With A Gifted Deposit: Everything You Need to Know

Mortgage With A Gifted Deposit: Everything You Need to Know

If you’re struggling to save for a deposit or want to help a loved one buy a property, mortgages with a gifted deposit could be the ideal solution. Saving for a deposit can be a daunting prospect, especially for first-time buyers. Whether you’re a first-time buyer trying to get on the ladder, or an experienced buyer moving up the chain, understanding how gifted deposits work can open the door to better mortgage options.

Gifted deposits are a common feature in the property market, particularly for those trying to get on the housing ladder. In this guide, we’ll explain what a gifted deposit is, who can gift one, how it can benefit borrowers, what lenders require, and which lenders currently accept gifted deposits.

What is a Gifted Deposit?

A gifted deposit means money that is given to a homebuyer by another person, often a family member to help fund the deposit on a property. It’s not a loan, it must be a genuine gift with no expectation of repayment.

A gifted house deposit is often provided by a family member and can have an impact on mortgage approval and terms, as lenders may have specific requirements or preferences regarding such gifts.

The gifted deposit contributes toward the buyer’s minimum deposit requirement, helping them meet lender criteria or access more competitive mortgage rates.

Who Can Gift a Deposit?

Most lenders prefer the deposit to come from a close family member, but some will consider gifts from extended relatives or, in rarer cases, friends. Each lender has its own policy. Funds for a mortgage deposit cannot come from a loan from a financial institution or other financial institution; only genuine gifts are acceptable.

Common acceptable giftors:

• Parents or step-parents (Bank of Mum and Dad)
• Grandparents
• Siblings
• Aunts and uncles (with some lenders)
• Legal guardians

Deposit gifts can come from multiple sources, but each must be documented separately.

If there are multiple gifts, each must be accompanied by its own gift letter and supporting documentation.

Less commonly accepted:

• Friends
• Employers
• Family trusts or companies

Lenders need to verify the source of the funds to comply with anti-money laundering (AML) regulations, and will request evidence and documentation from the person gifting the deposit. Lenders will conduct anti money laundering checks and require the donor to provide proof of their identity and the source of funds.

Who Benefits From a Gifted Deposit?

First-Time Buyers:

• Help from parents can make the difference between buying now or waiting years, as a gifted deposit can make it easier to get on the housing ladder.
• Reduces the size of the mortgage, lowering monthly mortgage repayments.
• May qualify for better rates by increasing the size of the deposit.

Home Movers or Upgraders:

• Family support can top up equity to help secure a more desirable property.
• Avoids the need to borrow more or sell other assets.

Those With Low Savings:

• A gifted deposit can replace or supplement limited personal savings.
• Reduces the pressure of long-term saving while property prices continue to rise.

Using a gifted deposit can make the process easier for buyers who may otherwise struggle to save enough for a deposit. This support can help first-time buyers and others overcome common barriers to homeownership.

What Documents Do Lenders Require for a Gifted Deposit?

To ensure the funds are legally acceptable and meet AML rules, the person gifting the deposit must provide the following:

1. Gifted Deposit Declaration Letter

This letter confirms:

• The funds are a gift and not a loan.
• The donor has no legal interest in the property.
• No repayment is expected.
• The donor is not being added to the mortgage or deeds.

A signature is not always required on the declaration letter, but it must clearly confirm whether the gift is repayable and outline any repayment terms.

2. ID and Proof of Address

• Passport or driving licence
• Utility bill or bank statement (dated within the last 3 months)

3. Proof of Funds

• Recent bank statements showing the origin of the gifted deposit.
• Evidence of how the money was acquired (e.g., savings, sale of assets, inheritance).

4. Proof of Transfer

• Bank statement showing the money transferred into the buyer’s account before exchange of contracts.
• Documentation should show the total deposit amount, including any gifted portion.

Some lenders may ask for additional documentation depending on their underwriting process and the relationship between the buyer and donor

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

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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