Getting a mortgage with a gifted deposit

If you’re a first-time buyer, a gifted deposit can help you to get on the property ladder. Here’s what you need to know.

With property prices continuing to climb, it’s difficult to get funds together for a deposit.

Gifted deposits can help. This is a lump sum usually given by a family member to help you get on the property ladder.

This could increase your mortgage options and reduce the amount of interest you pay. Here are some key points to know before you apply for your mortgage.

 

What is a gifted deposit?

When you’re buying a home, you need to get a deposit together as a down payment on your mortgage.

A gifted deposit is when a family member gives you this deposit.

When you receive a gifted deposit, it’s exactly what it says on the tin, a gift. So, the donor shouldn’t expect to be paid back or have any ownership of the property. 

Who can give a gifted deposit?

Usually a gifted deposit is given by your parents or grandparents.

Other family members can offer you a gifted deposit too, but you may have to go through more checks.

Usually lenders are warier if a third party, for example a friend or friend of the family wants to gift you a deposit. They may have to go through further checks too.

Lenders are becoming more flexible on this, though. For example, Nationwide allows anyone over the age of 18 to gift a deposit.

Each lender varies, so it’s worth speaking to them about their rules for gifted deposits.

How does a gifted deposit affect your mortgage?

A gifted deposit shouldn’t affect the type of mortgage you’re eligible for. Just make sure you’re clear to your lender that it’s a gifted deposit.

With any mortgage deposit, the bigger the amount the better. So, having a gifted deposit could either make up the whole deposit or boost your current savings.

Either way it’s likely to give you more options mortgage-wise.

You could benefit from mortgages with lower interest rates because you’re borrowing less money. This means lower monthly payments too.

Gifted deposits are widely accepted by lenders, as long as you can prove that the money is a gift. As we mentioned, the donor shouldn’t expect to be repaid or have any ownership of the property.

To work out how much your monthly repayments might be with a gifted deposit, use our mortgage repayment calculator. You can use this if you’re getting a mortgage for the first time or if you’re remortgaging. 

Which lenders allow gifted deposits?

Most lenders will accept gifted deposits, if you can give prove the deposit is a gift.

How do I prove my gifted deposit is a gift?

Anyone buying a house needs to be able to prove where they got their deposit from. This applies to gifted deposits too.

The donor will probably need to write a letter containing the following information, but always check with your lender and solicitor for exactly what to include:

• The relationship of the donor to you or whoever is applying

• The amount they’re gifting

• Confirmation that they know the gift is non-refundable

• Confirmation that they don’t have any legal rights on the property.

The donor will have to sign and date the letter. You’ll also need to get a witness to sign the letter.

The donor might have to give proof of where they got the money from too. Your lender might ask for the following:

• Photo ID, like a passport or driving licence

• Proof of address

• Bank statements.

This is just standard practice to check for money laundering. Your solicitor will probably ask for these documents too.

Are gifted deposits subject to tax?

This depends. If your donor dies within seven years of giving the gift, you may have to pay inheritance tax.

You’d only have to pay this if your donor’s estate – the wealth they’ve accumulated over the years – is more than £325,000. This is including the gifted deposit.

If your donor’s estate is worth more than this with the deposit, you may have to pay a tax of 40% - but this is only on the part of the estate that’s over the £325,000 threshold.

For example, if the estate is worth £500,000 and the tax-free part is £325,000, tax would be taken from £175,000 (£500,000 minus £325,000).

For more information visit GOV.UK.

Are there any alternatives to gifted deposits?

If you haven’t got a gifted deposit, there are plenty of other ways your family can help you get on the property ladder.

One way is a guarantor mortgage. Here, a parent or guardian uses their home or savings as collateral if you can’t pay your mortgage.

This reduces the level of risk for lenders as they know they’ll be able to recoup any losses from your guarantor if you can’t pay your mortgage.

This could open up your mortgage options. For more information read our guide on guarantor mortgages.

You could also investigate joint mortgages. This is where you, a family member or friend applies for a mortgage together.

Your joint earnings are considered, so you might have more mortgage options. Our guide on joint mortgages can tell you more.

READ MORE: Equity releases: are they worth it?

How much can I borrow for a mortgage?

How much you can borrow depends on a few factors.

It’s usually dependent on what you earn, any outstanding debts and childcare commitments. For example, if you owe any car finance or have any outstanding credit card payments.

By comparing mortgages through us you can find the best deal for your circumstances. You can also adjust interest rates and factor in your gifted deposit if you have one.

We only do soft credit checks at this stage, so shopping around with us won’t affect your credit score.