What is a gifted deposit?

July, 2022

It’s a sum of money given as a gift to a homebuyer to pay for some or all of the deposit on a property.

In most cases, it will be a close relative like the parents or grandparents of the homebuyer who provides the gifted deposit. The money might be from savings, or perhaps from equity they’ve released from their home.

The key thing is that the money is a gift, not a loan to be repaid, and that the gift-giver has no subsequent legal claim on the property. This is something that the mortgage lender will need to be satisfied is the case.

How do gifted deposits work?

Most mortgage lenders ask for a minimum 5% deposit to secure a mortgage. 

Many first-time buyers struggle to save up this amount. And this is where a gifted deposit can step in. A cash sum - from perhaps a close relative or friend - can either pay for the whole of the deposit or make up a shortfall. It can mean the difference between securing a mortgage or not. 

A cash gift could also increase a deposit from 5% to 10%, or from 10% to 20%, for example. A larger deposit will open up more mortgage deals to the borrowers - and often more competitive rates. That means the amount you pay each month and overall is less than it would have been with a smaller deposit.

You’ll need to tell your lender and your conveyancing solicitor that the deposit is a gift.

Failing to do so could mean that there’ll be a delay in your mortgage offer, or a withdrawal of the offer. So be upfront. Talk to your mortgage lender and solicitor to see what they require.

What is a gifted deposit letter?

Depending on the size of the gifted deposit and when it was given, you may have to take steps to prove to your lender that it is a gift (rather than a loan) and that the money will not need to be repaid.

Most lenders and conveyancers will have a template gifted deposit letter you can download for the donor/s to fill in and sign to verify this.

On the form or letter the donor/s must provide their personal details such as name and address and their relationship to the mortgage applicant. They’ll also need to confirm the amount and verify that the money is an unconditional and non-refundable gift and that they have no rights or interest in the property.

As part of standard anti-money laundering procedures, the donor will also need to provide bank statements or similar proof to your conveyancing solicitor showing exactly where the money they’re gifting has come from.

They’ll also need to provide your solicitor with proof of ID (passport or driving licence), plus proof of address (such as a bank statement or utility bill).

Who can gift a deposit for a mortgage?

Most mortgage lenders are happy to accept gifted deposits but prefer them to be from immediate family members, such as parents, grandparents or siblings.

Some may be more cautious when the gift is from a friend, for example, because they see it as more of a risk or they may have concerns that the gift might in reality be a loan.

Whatever the case, they’ll usually require signed confirmation that there’s no requirement for the money to be paid back and that the donor has no legal claim on the property.

Before anyone gifts you money for your deposit, check with your mortgage adviser or lender to make sure that it’s allowed.

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

Yes, a sizeable proportion of first-time buyers have managed to get their first step on the property ladder thanks to a gifted deposit.

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