Gifted Deposit Mortgage

Podcast approved by The Openwork Partnership on 29/10/2024.

What is a gifted deposit and how does it work?

A gifted deposit is exactly what it sounds like. It’s where somebody is giving you money as a gift for you to use towards the purchase of a property.

Most commonly, it’s a parent, an immediate family member or a close friend, but there are all sorts of scenarios where someone might do this. If it’s a true gift, it’s offered to you with no expectation of that money being returned, and no trade off for that money.

There’s no interest in that property from the person gifting the money. That person is literally giving you the money and not expecting anything in return.

Can I use a gifted deposit as a First Time Buyer?

Yes, absolutely. If you’re a First Time Buyer, you could use a gifted deposit. It’s acceptable with most lenders.

What is the mortgage criteria for a gifted deposit? Do all mortgage lenders accept gifted deposits?

The main criteria is that it is a gift. We’ll make the assumption that they are true gifts and there’s no expectation that you will return the money or make repayments.

The other side is around who is giving you the money. A lot of lenders are quite specific about who could supply the gift. They want to make sure it’s a true gift and that it’s plausible that person would provide you with that money.

A lot of banks and building societies will only allow you to use money given to you from a parent, grandparent and sometimes siblings. An advisor will be able to guide you and recommend a suitable lender to accept the deposit. You might have a cousin who you’re very close to, but a particular bank may not allow you to use gifted money from them.

Lenders also want the gifter to sign a letter or sign a gifted deposit form. It’s just to have it in writing that they are not expecting any money back – it’s a gift, and the giver will not have any interest in the property.

It protects the bank or building society. If they want to repossess the property in the future because you’re falling behind on the mortgage payments, that signature means the person giving you the deposit can’t stop them.

Most banks do accept gifted deposits but again, it depends who’s providing that. Some lenders are very relaxed and will allow a gift from a friend, an employer or even a landlord you’re currently renting from. Again they would want a signed letter or form.

Do I need a gifted deposit letter? If so, what will need to be included?

Yes, generally, you’ll need a gifted deposit letter. Your mortgage broker should be able to help you with this. A solicitor will maybe ask for a letter as well, so there might be two occasions you’re asked for that.

What’s included in it will be the gifter’s details: their name, address and the amount they’re gifting. It’s important that the letter states it’s non-repayable.

Other information might include whether the giver will be living in the property. It’s not a problem if they are, you just need to be upfront with this. If someone’s gifting you the deposit and is not named on the mortgage, that could limit your options. It’s not impossible, but it’s something to be mindful of when speaking with your mortgage broker.

Can I only receive gifted deposits from family members?

Yes, with some banks, and no with others. If you’re accepting a gifted deposit from a friend, a lot of banks will turn that down as the source of a deposit. But again, if you speak to an experienced advisor like us, we could recommend a lender that is comfortable with you doing that.

Is there a limit on how much can be gifted?

Not as such. If it’s a family member there isn’t a maximum gift limit.

However, if you’re being gifted some deposit perhaps from a builder or a developer, as part of an incentive to buy, then yes, there is a limit. But there isn’t really an advertised limit to how much is gifted with banks.

Do you have to pay tax on a gifted deposit?

I’d steer anyone who asks that question towards a tax advisor. It’s certainly worth asking that question, just to make sure you know you’re not going to get in trouble with HMRC and you’re paying any tax you’re liable for.

What will happen if a gifted deposit is not declared?

In mortgage terms, the lender might decline your mortgage. Perhaps your cousin is gifting you a deposit and you’ve applied for your mortgage but you’ve not declared it to your mortgage broker or solicitor.

The mortgage lender then declines it because they’ve discovered it’s not a direct family member. This will be checked, so it’s really important that you declare it from the off, because it will dictate which mortgage lenders you could approach.

With most family members, it’s fine. But if it’s friends or non-close family members, it does become a little bit more difficult.

How do solicitors check the source of funds?

There’s not a standard approach that every solicitor takes for every source of funds. If the source of funds is not clear to them, they will carry out as much due diligence as they need to do to satisfy them that the source is as disclosed.

Usually they will request ID from whoever’s gifting you the money, and proof of the deposit to show where the money is held. Most of the time it’s in a savings or investment account. You could just produce a statement for that. They’ll often ask for three months’ worth of bank statements to identify the trail of the funds.

It’s largely to make sure there’s no suspected money laundering or any other unfair play. That’s generally what to expect but, in theory, they could ask you for whatever they want.

How many bank statements do I need for a gifted deposit?

It’s really down to the person who’s asking – the bank, us or the solicitor. If mum and dad are gifting a deposit, and they’ve built that amount up from their income, we might want to see three, six or even 12 months’ statements showing a buildup of these funds.

Or, perhaps it was one lump sum from inheritance? That would require a few months’ evidence to show the transaction going in. There isn’t a rule of thumb as to how many bank statements – it’s down to the discretion of who’s asking and how the gifted deposit has been built up.