What is a Gifted Deposit?
Gifted Deposits are where someone, usually a family member, gifts you the deposit you require to obtain a mortgage.
This could be for the full amount you require or to just top up your existing savings.
There’s no minimum amount the giftor (person who’s gifting the money) has to contribute.
As long as you have a deposit of least 5% overall – subject to your circumstances.
Customers using a Gifted Deposit will be eligible for the same Mortgage products as anyone else applying.
Can a Mortgage Deposit be a Loan from Parents?
Not in most cases.
Gifted Deposits are not the same as a parent loaning you the monies with a formal agreement to repay.
Lenders will want confirmation that the monies given is a gift and is not to be repaid.
This can be confirmed by a Gifted Deposit Letter (template below).
The letter will need to state that the gift is non repayable (not a loan). And that the Giftor will have no right to reside in or have any interest in the property.
If the Mortgage Lender at any point finds out the gifted deposit is a loan, it will likely result in them withdrawing their offer to lend.
This is because the Giftor could legally claim a right or interest in the property, should the lender ever need to repossess it.
This isn’t something the lender will require ongoing confirmation of or will follow up on.
Just a Gifted Deposit Letter to confirm prior to application will suffice.
Gifted Deposit Letter Template
As mentioned above, the Lender and your Solicitor will require a letter or form to be completed by the person gifting you the deposit monies.
Some lenders have their own template for you to complete.
But if they do not, you can use the following template:
Who can provide you with a gifted deposit?
Practically all lenders will allow a gifted deposit from an immediate family member.
Classified as a Grandparent, parent (including step) or sibling usually.
Some lenders will also allow a gifted deposit from a non-immediate family member, like a friend.
As with a parent, they’ll have to prove where the money is coming from and declare it as a gift.
What will be required from the person providing the gifted deposit?
A signed gifted deposit letter – available above or from your Mortgage Advisor
Evidence of the funds, to satisfy money laundering requirements. This could be a latest month’s bank statement. Usually one full month’s minimum, or a letter from their bank confirming the funds are cleared in the giftors account.
In some cases, there may also be a need to provide proof of identity.
What is the minimum and maximum Gifted Deposit permitted?
There isn’t any minimum the Giftor needs to give you. Providing you have 5% overall, or whatever the Lenders minimum requirement is.
Every Lender is different, but generally, there is no cap on what can be used as a Gifted Deposit. However, the larger the deposit, the more due diligence the Mortgage Lender or Conveyancer (Solicitor) will complete.
Alternatives to Gifted Deposits
Family members either use the equity in their home or put their savings into a bank account with your Mortgage lender. For example, for 10% of the value of the property you are purchasing.
Providing you keep up with repayments on your Mortgage, the family members monies are returned after 3-5 years, dependent on the scheme.
Family loan in the form of a second charge or family trust arrangement can be used instead of Gifted Deposits.
Contrary to the above, this is where a family member loans you the deposit, Which is then secured against your property.
This will be in addition to your Mortgage. A few lenders offer this option.
An unsecured loan from a Bank or other authorised finance company. A couple of lenders will allow this.
Concessionary purchase – purchasing a property from someone below the market value.
Difference between the market value and the amount they sell to you can be used as the deposit. This can usually only be between close family members.
Help to Buy Equity Loan
Whilst you’ll still require a 5% deposit. The Government will then provide an additional deposit up to 20% (40% for London), as an equity loan.
This helps reduce your loan to value and thus the interest rate you are eligible for.
Things for the Giftor to Consider
In addition to the Documentation they will need to provide.
Giftors should also be aware that standard Inheritance Tax rules apply.
If the Giftor was to pass away within 7 years.
There might be an inheritance Tax liability, where the Giftors estate is in excess of £325,000.
This will be a question for a qualified Accountant.
We are not Tax Advisors, and this shouldn’t be seen as tax advice.
Costs involved with Concessionary Purchases
For the buyer, the costs involved with Concessionary purchases will be relatively the same as they would be for ordinary buyers.
You may have to consider stamp duty, broker fees, solicitor fees and any fees associated with the Mortgage Product you take out, such as Arrangement or Property Valuation fees.
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