Gifted Deposit Mortgage
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Gifted Deposit Mortgage
Steve Murphy talks to us about gifted deposits.
What is a gifted deposit? How does it work?
It’s simply where some or all of your deposit for a property purchase is gifted to you, by someone who isn’t buying the property with you.
Can I use a gifted deposit as a First Time Buyer?
Yes, First Time Buyers often use a gifted deposit to buy their first home.
What are the mortgage criteria for a gifted deposit? Do all mortgage lenders accept them?
Yes, lenders’ criteria around gifted deposits does vary quite a bit from lender to lender. The most common requirements are:
- The gift must be from a family member
- It is not repayable
- The gifter will not reside in the property
- The gifter won’t take any legal interest in the property.
Do I need a gifted deposit letter? What will need to be included in it?
Yes, it is common for lenders to require a gifted deposit letter, written by the gifter to confirm certain points. This will usually include their relationship to you, that the gift is not repayable, that the gifter will not take any financial interest in the property and not reside in it.
Can I only receive gifted deposits from family members?
Most lenders will only allow gifted deposits from family members. However, a small number of lenders will accept gifts from non-family members, subject to meeting specific criteria.
How much can be gifted?
Lenders don’t limit the amount of a gifted deposit, but in some cases they may require a certain proportion of the deposit to come from the buyer’s own resources, as opposed to entirely coming from the gift.
If you don’t have your own resources, there are still plenty of options for mortgages where your entire deposit is a gift.
Do you have to pay tax on a gifted deposit?
If it’s a genuine gift, the only tax the recipient may have to pay is inheritance tax. This is subject to many factors, so seek expert advice from a tax advisor for clarity.
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What will happen if a gifted deposit is not declared?
The source of funds for a house deposit must always be declared. If the true source of the funds is misrepresented in any way, it would be a criminal offence. Severe penalties could arise, including imprisonment, if you don’t comply with the laws in this area.
How do solicitors check the source of funds?
Solicitors are required to verify the source of funds, usually by requesting bank statements from the gifter showing where the funds have actually come from.
How many bank statements do I need for a gifted deposit?
Solicitors will usually need to verify bank statements of the gifter going back six to 12 months.
What is the seven-year rule for gifted deposits?
The seven-year rule refers to inheritance tax again and, specifically, the period of time a gifter has to survive after the gift has been made. If someone passes away within seven years of making a gift, inheritance tax may apply.
Expert tax advice should always be sought for specific guidance on this and whether that would be relevant to your situation.
What is the alternative to gifted deposits?
One alternative is putting down a smaller deposit of your own, if you’ve got some funds, or borrowing funds for the deposit from somewhere. Some lenders will allow a borrowed deposit, or perhaps a concessionary purchase price, where the vendor knowingly sells the property to you at a price below its true value.
What are the pros and cons of a gifted deposit?
The main pro of a gifted deposit is that you’ll be able to buy a property sooner. You may also qualify for a lower interest rate than with a smaller deposit from your own funds.
One downslide to a gifted deposit is that increased documentation is required during the mortgage application and legal process. That’s down to needing evidence from the gifter of the source of the funds, usually with their bank statements.
Also, depending on your residency status in the UK, you may have to pay a higher interest rate than with the same deposit from your own resources.
How can a mortgage broker help here?
A mortgage broker can always ensure that the entire situation, including the deposit, the person gifting it and where the funds are coming from, will be acceptable to the lender before you apply.
That can potentially save you a lot of time and money, by avoiding a wasted application that didn’t stand a chance due to those factors.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
For specialist tax advice, please refer to an accountant or tax specialist.
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What you need to know…
The actual amount you can borrow will depend on your credit commitments, your regular monthly outgoings and how each lender assesses your income.
Lender’s affordability checks can differ meaning that the amount you can borrow may change from lender to lender. That’s where the expertise of our personal advisers comes in and where our independent status benefits you.
The minimum deposit required is 5% of the property purchase price. Most lenders will allow the deposit to come from a gift and some lenders will even consider this being raised via a personal loan. There are government incentives to help boost your savings if you are a first time buyer. Depending on your circumstance you may either need to have a larger deposit or will perhaps want to put a larger deposit down, due to preferable interest rates.
Because we are independent mortgage brokers we will be able to secure you the best deal for your circumstance.
An Agreement in Principle, also known as a ‘Decision in Principle’ will be provided after affordability and credit checks have been approved. An Agreement in Principle is extremely useful to increase your confidence when viewing and offering on properties. Estate Agents will typically want to see an Agreement in Principle before presenting your offer to the seller. Our personal advisers can help you with this.
It’s a requirement of your mortgage to have buildings insurance. This covers the bricks and mortar of the property.
It’s also a good idea to take advice from your personal adviser on protecting you and your loved ones if something bad happens. For example: Life Cover, Critical Illness Cover and Income Protection.
Being accepted for a mortgage does depend on your circumstances. We are experts with all types of mortgages…. We specialise in obtaining mortgages for the self-employed, contractors, construction industry scheme (CIS) workers and those with historic adverse credit (as well as employed people of course). In all these situations we can frequently secure high street deals. Being independent and experts is a real benefit in these circumstances.
Your monthly payments will vary depending to your chosen mortgage term, choice of mortgage product, how much deposit you have and repayment type. It is best to chat with a personal independent adviser to find out exactly what interest rate and term you can secure to give an accurate monthly payment.
Most of the first time buyers we have helped secure a mortgage are paying less on their mortgage than they used to pay on rent. This does, however, depend on circumstances. The mortgage term chosen is a major factor which can be dictated by your age and intended retirement age. Of course, it is also worth noting you are paying back the mortgage and once it is repaid you won’t have any rent to pay.
There are costs associated with purchasing your first home. You will need to pay legal fees and other potential costs include a survey fee, stamp duty (which is a property land tax) and administration fees. There are First Time Buyer government incentives on savings and stamp duty that can help you with raising the monies for a deposit, costs and reducing stamp duty. Our personal advisers can give guidance within a free consultation.