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Gifted Deposit Mortgages

A Gifted Deposit Mortgage helps buyers using a deposit gifted by a family member.

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What is a gifted deposit mortgage?

Gifted deposit mortgages can be beneficial for those who may not otherwise have been able to afford a property on their own. It’s crucial for both the borrower and the person providing the gift to understand the terms and conditions associated with getting a mortgage with a gifted deposit. Speaking with a mortgage advisor can provide further guidance on navigating the mortgage process with a gifted deposit.

Lenders often have specific requirements regarding gifted deposit mortgages, including documentation to prove that the money is a gift and not a loan, as well as the relationship between the borrower and the person providing the gift. Borrowers and gifters need to understand the terms and conditions associated with gifted deposit mortgages before proceeding.

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How does a gifted deposit mortgage work?

A gifted deposit works by allowing a third party, such as a family member or friend, to provide the funds needed for a deposit on a property purchase. Here’s how the process typically works:

  • Leave the Funds in the Donor’s Account: We recommend you leave these funds in the donor’s account and transfer them directly from that account to the solicitor when required.
  • Agreement and Documentation: The donor agrees to gift a certain amount of money for the deposit, and both parties sign a form confirming it’s not a loan. Documentation is provided to the lender to verify the gift.
  • Application and Approval: The borrower applies for a mortgage, including disclosure of the gifted deposit. If the borrower meets the lender’s criteria and the gift is properly documented, the mortgage is approved.
  • Purchase and Completion: The gifted deposit is used towards the property purchase. Legal processes ensure the deposit is accounted for, and once completed, ownership of the property is transferred to the buyer.

For a more in-depth discussion regarding gifted deposit mortgages, it’s advisable to speak with a mortgage broker. We can assist in ensuring that all parties involved fully understand their responsibilities and obligations associated with gifted deposits.

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What evidence is needed for a gifted deposit mortgage?

The person gifting you the deposit will also need to provide:

  • Proof of funds: If the money being gifted comes from an expected source, such as the sale of a home, this is easy to prove. If the money has been saved up over time, multiple bank statements may be needed to be supplied to your solicitor to meet the anti-money laundering checks.
  • Proof of ID: The family member or friend gifting the money will need to show photo ID, such as their passport. Plus, they’ll need to provide two proofs of address.

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Gifted Deposit Mortgage FAQs

Can I use a gifted deposit as a first time buyer?

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Yes, you can use a gifted deposit as a first time buyer.

Many lenders accept gifted deposits, but they typically require a letter from the person providing the gift to confirm that it is not a loan and does not need to be repaid.

Why do I need a gifted deposit letter?

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A gifted deposit letter is needed to prove to the mortgage lender that the money being used for the deposit is a gift and not a loan.

This helps the lender ensure that there are no undisclosed financial liabilities that could impact your ability to repay the mortgage.

What to include in a gifted deposit letter?

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A gifted deposit letter should include:

  • The name and address of the person giving the gift.
  • The relationship between the giver and the receiver.
  • The amount of money being gifted.
  • A statement confirming that the money is a gift, not a loan, and does not need to be repaid.
  • Confirmation that the giver has no financial interest in the property.
  • The giver’s signature and date.

Can I only receive gifted deposits from family members?

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While many lenders prefer that gifted deposits come from family members, it is not always a strict requirement.

Some lenders may accept gifts from close friends or other sources, but this can vary. It’s important to check with your specific lender about their policies.

Can I use gifted deposits from multiple sources?

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Yes, you can use gifted deposits from multiple sources. Each person providing a gift will need to provide a separate gifted deposit letter.

Your lender will likely review each source to ensure the legitimacy of the funds.

Do you pay tax on a gifted deposit?

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Generally, you do not pay tax on a gifted deposit itself in the UK. However, the giver might be subject to inheritance tax if they pass away within seven years of giving the gift, depending on the amount and their total estate value. This is known as the “seven-year rule”.

How much can you give as a gifted deposit?

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There is no legal limit to the amount that can be given as a gifted deposit. However, large sums may attract scrutiny from lenders, who will want to ensure that the money is indeed a gift and not a loan. Additionally, larger gifts may have implications for inheritance tax.

What happens if you don’t declare a gifted deposit?

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Failing to declare a gifted deposit can have serious consequences. If the lender discovers that part of your deposit was a gift and you did not disclose this, it could be considered mortgage fraud.

This can result in the mortgage offer being withdrawn, legal action, and potential difficulty obtaining mortgages in the future. It’s essential to be transparent with your lender about all sources of your deposit.

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