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Mortgages

What is a gifted deposit?

Published: 24 October 2023
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Author: Carl Shave - CEO and co-founder
Last updated: 14Jul2024

A gifted deposit is money gifted to you which is put towards part or all of your mortgage deposit. The person gifting is usually a relative or close friend.

An example is you may have a 10% deposit for a property, and your parents then gift you 5%. Therefore, your total deposit amount is now 15%, opening up your options and potentially making you more attractive to lenders.

All mortgage providers require this money not to be loaned; it must be gifted. So, there can’t be any agreement stating you will pay back the gifted deposit.

How does a gifted deposit work?

As mentioned above, this money must be gifted and can’t be a loan. Once you have agreed the amount with your donor you can calculate your total deposit amount. The gift amount could be a portion of your total deposit or all of it.

You will then need to speak to a lender. You will either need to write a letter for a gifted deposit or fill out the lender’s gifted deposit form. If the lender is happy with this and accepts it, the deal can be made.

Who can give a gifted deposit?

There is no real limit on who can gift you a deposit. Although lenders typically prefer it to come from a close relative, which means the majority of gifted deposits come from grandparents or parents.

A gifted deposit from, say, a close friend, may prove a little more difficult as the lender will want to carry out more in-depth checks on this individual. In this case, slowing down the application process.

Do you have to declare a gifted deposit?

You must declare that a gifted deposit is being used rather than a loan, as loans make getting approved much harder. The information you need to declare will be on the gifted deposit letter or on the lender’s gifted deposit form.

What are gifted deposit letters?

This is a letter written for both your solicitor and lender to prove the money has been given as a gift. Each lender will require different things, so check with them first, but they typically require:

  • Your name and adress
  • The donor’s name and address
  • Yours and the donor’s relationship
  • The total amount gifted
  • Confirmation that you will not be required to pay it back
  • Proof that the donor is financially stable
  • Confirmation that the donor will not own any part of the property

You will work with your solicitor when writing it, providing them with any documentation that can prove any of the above information. If you are struggling to write it, there are many sources online that provide gifted deposit letter templates for free. Many are by big name, high street lenders.

Which mortgage lenders accept gifted deposit?

Virtually all lenders will consider a gifted deposit. The main element for acceptance is what connection does the donor have to the applicant.  Options reduce when it is not a close relative. Gifts between married couples can also raise concern. This is especially when both will occupy the property but, the mortgage and property ownership is in a sole name.

Are there alternatives to a gifted deposit?

There are various alternative mortgage schemes and types available that can help you get onto the property ladder. Some of the more popular ones include:

  • Guarantor mortgages allow a person to guarantee to your mortgage provider that you will make the payments. Therefore, the lender has reassurance that someone will take responsibility for your payments if you can’t do so.
  • Joint Mortgages are a perfect way to increase deposit size when applying for a mortgage. The other person could be a person or close family member. So, by increasing your deposit size, your attractiveness to lenders can increase.
  • Lifetime ISA’s are a scheme created by the government designed to help you buy your first home. The government will add 25% to your savings, up to a maximum of £1,000, helping you generate some extra capital for your deposit.
  • Shared ownership was designed to help you get onto the property ladder. You usually buy between 25% and 75% of the property, where you will take out a smaller mortgage. And you will then be charged rent based on the remaining percentage. Perfect if you have a smaller deposit amount.

Frequently Asked Questions

Is there a limit on the amount that can be gifted?

There is no limit to what can be gifted and used as a deposit, unless your lender says otherwise. Although, the capital could be subject to inheritance tax if the donor dies within 7 years of gifting you the money for a mortgage deposit. Its always best to consult with your solicitor If you’re unsure.

What are the problems with a gifted deposit?

There are two main disadvantages of gifting money for a house deposit. The first being, as mentioned above, the capital could be subject to inheritance tax if the donor dies within 7 years of them gifting the money.

The next is that if the donor falls into financial difficulty, they may want you to pay them back, which could lead to a falling out. However, if the correct documents are completed initially then you are not legally required to pay anything back.