Mortgage With A Gifted Deposit

Let’s be honest – almost everyone dreams of owning a home at some point in their lives.

However, the process of buying a home (or any other type of property) can come with many challenges. This is especially true for first-time buyers who have little to no experience in purchasing property.

Not only do you require sufficient financial resources, but you also require good knowledge about mortgages, taxes and so on. And while the latter concerns can be managed with some research, the financial aspects can become challenging for first-time home buyers.

Fortunately, mortgage with a gifted deposit can help you out, as it can ease the financial load to some extent. But now the question that arises is – what exactly is it and who can provide gifted deposits?

Well, that is what we have looked into in this guide today. So, if you are curious, then read on!

What Is A Gifted Deposit?

Simply put, a gifted deposit is an amount of money that is paid for the initial deposit as a gift contribution. Such a deposit is different from a conventional mortgage deposit since the person buying the home is not the one who pays it.

In other words, a gifted mortgage deposit is usually paid by another person, which is why it is considered a gift amount. This person is generally a family member or close relative who is willing to help out the first-time home buyer by contributing some money toward the purchase.

The person who makes the gifted deposit should not treat the amount as a loan. They cannot ask the actual buyer to return the money with or without interest later on. If they do, then it will no longer be considered a gifted deposit. 

Essentially, the person paying the deposit amount should have no legal interest in getting the property you are purchasing and should not require the money to be prepared.

In this regard, the gifted deposit amount can cover some or all of the initial deposit for the property. It can even be added on top of the initial deposit that has been paid by the home buyer.

Standard regulations dictate that home buyers need to pay a minimum 5% deposit when applying for a mortgage. So, a person who intends to pay the gifted deposit can cover that 5% to make it financially easier for the home buyer.

And if the buyer has already paid the deposit, they can use it to increase the deposit amount further, which reduces the financial load of the mortgage.

How To Get Mortgage With A Gifted Deposits?

According to recent data, the average property price is over £285,000, which means that even 5% of that amount can be a lot to find for a first time buyer.

That is why gifted deposits are considered useful when applying for mortgages. For first-time buyers who lack the funds to pay for a deposit themselves finances, they can provide a helping hand onto the property ladder.

There is no separate mortgage type for gifted deposits, which means that you can opt for any mortgage plan and it would be treated as a standard mortgage.

The only difference is that the initial deposit or proportion of your deposit will be covered by the gifted amount.

That said, there is a certain criteria that needs to be followed when using a gifted deposit. Each lender has different criteria you must mee but the main points to look out for have been covered below..

Step 1. Confirm The Gift Amount With A Gifted Deposit Letter

First, you will need to confirm the deposit by providing a gifted deposit letter to the solicitor or lender. This letter confirms that the deposit amount is a gift and that the person who paid it has no legal interest in the property or retrieving their funds down the line.

Most mortgage lenders today will require you to provide this letter. This means that without it, you may have difficulty using the gift amount as a deposit.

Step 2: Provide Identification Of The Person Gifting

Next, the solicitor will ask you to provide valid identification of the person who is giving the gifted deposit. For this step, you can use any of the established documents used for identification, such as:

• Driving licence
• Passport
• Utility bills
• Bank statements
• Letter from the HMRC

It is important to note that the buyer needs to provide one photo ID and two proofs of address. If you provide only a single proof of address, the lender might not accept the deposit.

Step 3: Provide Proof Of Funds

Lastly, you will need to provide proof of the funds that will be used as the gift. The solicitor needs to check this so that they can verify the source of the money. It acts as a safeguard against illegal money laundering activities.

If the amount has come from an expected asset, such as the sale of house or pension shares, then it will be easier to prove. However, if the amount comes from the savings of your donor, then it might be slightly more complicated.

In that scenario, you may need to provide multiple bank statements as evidence of the money and to provide the source of the funds.

What Does The Gifted Deposit Letter Consist Of?

Out of all the documents that you need to provide, the gifted deposit letter is possibly the most important one. Not only does it act as a confirmation of the gifted deposit, but it also acts as a reference document for any future issues, should they arise.

With that in mind, most mortgage lenders have a predefined template for this letter that you need to follow. Each template is different, but the letter should usually include:

• Your name and address
• The person giving the gift (the source of funds)
• Relationship between the gifting person and the receiver
• The amount of money
• Confirmation that the money doesn’t need to be repaid
• Confirmation that the person giving the gift won’t have any stake in the property
• Proof that the gifter will not live in the property after gifting the funds.

Frequently Asked Questions

1. Who Can Provide A Gifted Deposit?

A gifted deposit can be provided by any immediate family member, such as parents, siblings or grandparents. In some cases lenders may allow gifts to be provided by friends but this is less common and only certain lenders can consider this.

Gifted deposits from landlord’s and builders may also be considered in some circumstances. 

2. Do Lenders Always Accept Gifted Deposits?

No, lenders are not obligated to accept gifted deposits all the time. This is because the rules and regulations about such deposits can change, depending on global and domestic circumstances. So, in order to minimise risks, lenders can rule out such deposits.

Also if they are not happy with the source of the funds and can’t be sure where the deposit money is coming from they may not accept the application. 

3. What Alternatives Can You Choose If A Gifted Deposit Is Ruled Out?

In case your gifted deposit is declined by the lender, you can opt for alternatives like joint mortgages, guarantor mortgages or family springboard mortgages. For first-time buyers, these can be equally helpful for managing financial obligations without issues.

4. What Is the Maximum Gifted Deposit?

There’s no legal maximum limit for a gifted deposit. However, lenders may have their own policies on how much of your deposit can be gifted. It’s common for parents or close family members to gift money towards a house deposit. Always check with your lender or mortgage advisor to understand their specific rules and requirements related to gifted deposits.

Conclusion

Gifted deposits can be a great way for first time buyers to get on the property ladder if they have someone close to them who is kind enough to provide funds so you can make this first step. 

However, the first thing is to find a donor who is willing to be generous enough to make such a contribution. If you don’t have anyone like that, you may need to explore some of the alternatives we have suggested. 

If you feel unsure, do not hesitate to seek help from qualified mortgage advisors, who can lend a helping hand throughout the process and advise you on the steps to take to take you into a position to purchase your first home. 

Your home may be repossessed if you do not keep up repayments on your mortgage.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.