According to recent research by Mortgage Advice Bureau, 1 in 7 people are currently relying or planning to rely on a gifted deposit from family. A gifted deposit is money given to you, often by family members or friends, to help you pay for a house deposit. This money is a gift, not a loan, meaning there is no expectation of repayment, and the gift giver has no stake or claim on your property.
Receiving a gifted deposit from family members is becoming more common as house prices rise and saving for a deposit becomes more challenging. In fact, many first time buyers now rely on these to get onto the property ladder. However, while a gifted deposit can help you buy a home sooner, there are key factors to consider which will ensure you're prepared and won’t hold up the process of buying.
Danny Belton, Head of Lending, Mortgage Advice Bureau, explains what to consider when buying with a gifted deposit:
Understanding what a gifted deposit is
It’s important to confirm that the deposit is genuinely a gift. Mortgage lenders will often require proof in the form of a “gifted deposit letter” from the donor, confirming they expect no repayment and have no interest in the property.
Using a gifted deposit can make securing a mortgage easier, especially if it helps you meet the lender’s deposit requirements. It could also help to lower your loan to value. However, not all lenders accept gifted deposits in the same way, and there may be conditions on who can gift the money (typically close family members).
Legal considerations
When using a gifted deposit, several legal steps are involved to ensure everything is in order. You and the donor will need to sign a gifted deposit letter, and the donor may also need to provide identification and proof of where the money came from.
Key points to cover in the gifted deposit letter include:
- The donor’s name, your name, and the amount of the gift
- A clear statement that it’s a gift with no expectation of repayment
- Confirmation that the gift giver will not have any ownership or stake in the property.
- These documents are essential for both your mortgage lender and solicitor during the home-buying process.
Inheritance tax considerations
Although gifting money towards a deposit may seem straightforward, there can be tax implications, particularly if the donor passes away within seven years of giving the gift. If this happens, the gift may be subject to inheritance tax depending on the value of the estate.
It’s worth speaking to a solicitor or financial adviser to understand the potential impact and ensure that all tax considerations are properly addressed, especially for large sums of money.
