Gifted Deposit Mortgage

What is a gifted deposit and how does it work?

Let’s say I’m a First Time Buyer and I don’t have a big enough deposit. If I’ve seen a £100,000 house, my parents, friends or relatives may choose to give me a deposit of £5,000, which in that case will get me a 95% mortgage.

It’s a gift. It’s important that it’s not repayable. I had a client whose granddad was gifting her the deposit. But my client said she’d like to pay her granddad back, and he mentioned that to the solicitor, who then mentioned it to the lender and then they classed it as a loan. It caused umpteen problems.

A gift does need to be a gift. If it’s repayable, it will be classed as a loan and the lender would deduct that off your income.

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

First, it has to be a gift and the person gifting that amount must not have any ownership of that property. If you were gifting me £5,000, you’re not buying the property with me. It is a gift. It’s my house, not yours.

That’s the major criteria. Lenders all have slightly different rules around whether it’s got to be a blood relative, step parents, grandparents etc. Some lenders accept friends or work colleagues. No two lenders are identical as far as the criteria goes.

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

A lot of lenders tend to have a template. I’ve done one this week for a client and his mum and dad, who are giving him a £20,000 deposit, filled in the template to say it is a gift, it’s not repayable and they don’t have any ownership of that property.

\That’s all the lender expects you to do. Sometimes the solicitor in these cases may need a little more information from a money laundering perspective. I had one where the applicant’s parents had to provide six months proof of their savings, which they did without any problems.

If parents or grandparents are borrowing the money for that gift, it could be an issue. Some solicitors from a money laundering perspective do require some further checks.

Can I only receive gifted deposits from family members?

It depends on the lender’s criteria. Some are definitely open to gifts not from family members, but others might say no to that. We just need to find the right lender.

Is there a limit on how much can be gifted?

Not at all. I’ve had clients with as little as £1,000 or £2,000 being gifted, while the biggest one was £165,000, from very generous parents. There isn’t a minimum or a maximum. It depends on whatever the parents are wanting to do, and a lot depends on the affordability.

I’ve got one client on quite a low basic salary at the moment as he’s on a form of internship. In a couple of years’ time, his salary will increase dramatically. He’s wanting to get a better house now so he doesn’t have to move in two years. His parents asked us to work out the maximum he can get, and they will top the rest upon a gifted deposit, which is fantastic.

Do you have to pay tax on a gifted deposit?.

There’s no tax on it because it’s taxed money that mum, dad or grandparents have got.
I suppose there could be implications if the person gifting that money died.. But we’re in an accountant’s territory here, rather than a mortgage advisor’s.

What will happen if my gifted deposit is not declared?

It will end up getting declared at some stage, and that will slow the process down. I had a client that actually exchanged contracts yesterday, with completion tomorrow. We did a Decision in Principle at 95% which failed, unfortunately. We then looked at 90% which passed. The applicant thought they could save the required deposit amount by the time it got to completion.

But they didn’t quite save the deposit needed, so they went to their parents who gifted them the balance, which was only about £3,000 in the end. It then has to be declared to the lender. When the deposit came through, the lender’s solicitor needed anti-money laundering checks done, and they advised the lender. It slowed everything up for about two or three days.

Otherwise, though, the applicant couldn’t have actually made-up that deposit. It was the only way they could do it.

How do solicitors check the source of funds so anything else to add there?

Each company will have slightly different anti-money laundering requirements. The solicitor I use looks at six months bank statements to show that money’s been in their account. If a large lump of money came in a few months ago, she would ask where that came from.

We would then declare a gifted deposit and we would need the family member or person that gifted it to provide details of where that money came from.