Gifted deposit
Gifted deposits are becoming increasingly common due to the high cost of property in the UK, particularly for first-time buyers and statistics show that over 17% of first time buyers had some or all of their deposit funded by a gift.
What is a gifted deposit?
A gifted deposit is a financial contribution, usually provided by a family member or friend towards the purchase of a property. It is essentially a sum of money given as a gift and does not have to be repaid.
What benefits are there to using a gifted deposit?
Having a larger deposit is never a bad thing, here’s a a few reasons that it may be useful to have a gifted deposit.
- Better interest rates and deals: Lenders may offer lower interest rates and better mortgage deals for those with a larger deposit, which a gifted deposit can help provide.
- Buy a nicer/more expensive property: A larger deposit can allow you to afford a more expensive property or a property in a better location.
- Non-repayable: A gifted deposit is a gift, so you don’t have to repay it.
- Enable you to buy when otherwise couldn’t: A gifted deposit can help you get on the property ladder sooner or buy a property that may have been unaffordable otherwise.
- Smaller mortgage and monthly payment: A larger deposit can lead to a smaller mortgage amount and lower monthly payments.
- Don’t have to give up ownership rights to the property: Unlike shared ownership schemes or joint ownership, a gifted deposit does not affect your ownership rights to the property.
Who can gift me a deposit for a mortgage?
The rules around who can gift a deposit can vary depending on the lender and the specific mortgage product. However, in general, gifted deposits are typically given by a family member or a close friend.
Some lenders may have specific requirements around who can provide a gifted deposit, such as insisting on direct family members only. Others may be more flexible and allow gifts from a wider circle of people, including extended family members or even friends.
What’s the process of getting a mortgage with a gifted deposit?
To get a gifted deposit mortgage, you will need to follow a specific process:
Confirm the lender’s requirements: Check with your lender to confirm their requirements for gifted deposits. They may have specific guidelines and documentation that they require.
Receive a gifted deposit letter: The person providing the gifted deposit will need to provide a letter stating that the money is a gift and that they do not expect repayment. The letter should also include their contact details and relationship to you.
Provide evidence of the gift: Your lender or solicitor may request evidence that the gift is available, such as a bank statement showing the funds in the donor’s account. However, this is not always required.
Get legal advice: It’s a good idea to get legal advice from a solicitor to ensure that the gifted deposit is legal and that all necessary documentation is in place.
Apply for the mortgage: Once you have all the necessary documentation, you can apply for the mortgage with the gifted deposit included as part of your deposit.
What should a gifted deposit letter contain?
A gifted deposit letter should contain specific information to ensure that the lender can verify that the deposit is a gift and that it doesn’t need to be repaid. The exact requirements for the letter may vary depending on the lender, but in general, it should include:
- Confirmation that the money is a gift: The letter should clearly state that the deposit is a gift and that the donor does not expect repayment.
- Relationship to the recipient: The letter should include the name and relationship of the donor to the recipient, such as parent, grandparent, or friend.
- Contact information: The donor’s contact information, including their full name, address, and phone number, should be included in the letter.
- Confirmation of the amount: The letter should specify the exact amount of the gifted deposit.
- Signature: The donor should sign the letter to confirm that the information is accurate.
It’s important to ensure that the letter is dated and that it includes all the necessary information to satisfy the lender’s requirements.
What if I need to repay my gifted deposit back?
Generally, gifted deposits are non-repayable, which means that the person giving the gift does not expect repayment. If a gifted deposit is repayable, some lenders may treat it as a loan and factor in the monthly repayment amount when assessing your affordability for a mortgage. This could affect your ability to secure a mortgage, especially if the repayments are substantial.
However, some lenders may allow you to have the gift repayable on sale of the property. This means that the donor could receive their money back, plus any interest that was agreed upon, when the property is sold. In this case, the gifted deposit is still technically a loan, but it’s not repayable until the property is sold.
Can I use a guarantor instead of a gifted deposit?
Yes, you may be able to use a guarantor instead of a gifted deposit if adding a guarantor allows you to borrow more to negate the need for a gifted deposit.
However, it’s important to note that if you borrow more, the monthly payments will increase, potentially along with the interest rates. It’s important to carefully consider the risks and benefits of using a guarantor and to seek professional advice from a mortgage advisor or lender.
Are there any alternatives to using a gifted deposit?
There are alternative options to a gifted deposit that you may be able to consider. Here is a brief overview of each option:
- Use savings: You can use your own savings to increase your deposit amount, which can help you secure a mortgage and potentially a better interest rate.
- Buy a cheaper property: By looking at properties that are less expensive, you may be able to afford a larger deposit and secure a mortgage with a more favourable interest rate.
- Wait and save: If you’re not in a rush to buy a property, you may be able to save up for a larger deposit over time.
- Shared ownership: You can buy a share of a property, typically between 25-75%, and pay rent on the remaining share. This can reduce the amount of deposit you need to put down.
- Joint mortgage: You can apply for a mortgage with another person, such as a partner or family member, which can increase your affordability and the deposit amount you can put down.
- Joint borrower sole proprietor/guarantor mortgage: With this type of mortgage, a family member can help you secure a larger mortgage by acting as a joint borrower, guarantor, or co-owner. This can increase your affordability and the amount of deposit you can put down.
Guide to Joint borrower sole proprietor mortgages
- Smaller deposit: Some lenders may offer mortgages with higher LTV ratios, which means you can borrow a larger percentage of the property’s value and potentially avoid the need for a large deposit or a gifted deposit.
Are gifted deposits subject to tax?
Gifted deposits themselves are not subject to tax in the UK. However, there may be inheritance tax implications for the person making the gift if they pass away within seven years. Recipients of gifted deposits may also face tax implications if the gift is used to generate rental income or if the property is sold at a profit.
How much can a gift deposit be?
There is no fixed limit to the amount that can be gifted as a deposit. Many lenders have no caps on the gifted deposit amount, but some may impose restrictions or requirements, such as a maximum limit or requiring the borrower to put in some of their own savings as well.
Can I use a gifted deposit for a Buy to Let
Yes, it is possible to receive a gifted deposit for a buy to let property, but it can be more challenging than for a residential property. There are fewer lenders who consider gifted deposits for buy-to-let mortgages, and the requirements and restrictions may be more stringent.
Can I use a gifted deposit from abroad?
Yes, it is possible to use a gifted deposit from outside the UK. However, the process may be more complicated and involve more stringent checks. Lenders will typically require evidence of an audit trail to ensure that the funds are legitimate and may require additional checks if the donor is located outside of the European Union.
Gifted Equity deposits (Concessionary purchase)
A gifted deposit does not necessarily need to be in the form of cash or savings. In some cases, a “concessionary purchase” can be classified as a gifted deposit. This typically involves purchasing a property at a discounted price from a family member, friend, or other party who has a personal connection to the buyer.
