What is a Gifted Deposit and How Does it Work?
A gifted deposit is exactly as it sounds, money that has been gifted to you, usually by a relative or close friend, which can be put towards part or all of your mortgage deposit. Unlike a loan, a gifted deposit does not need to be repaid, and mortgage providers will require an agreement stating you will not be paying back the deposit. Once the gifted amount has been agreed, it can be used to calculate your total deposit amount. You will then be able to fill out your lender’s gifted deposit form or have your donor write a letter for the gifted deposit, whichever is deemed acceptable by your lender, and then the deal can be made. A gifted deposit letter will usually include:- Your name and address.
- Your donor’s name and address.
- Your relationship to the donor.
- The total amount being gifted.
- Confirmation that the money is not loaned, and you will not be required to pay it back.
- Proof that your donor is financially stable.
- Confirmation that after the deposit has been gifted, the donor won’t own any part of the property.
Who Can Give a Gifted Deposit?
The majority of lenders will prefer a gifted deposit to come from a close relative, like parents or grandparents, but nothing is set in stone and will depend on your lender’s preferences. It may be more difficult for you to use a gifted deposit from a close friend, as your relationship with them may be seen as less secure, therefore your lender may want to carry out more in-depth checks on the individual.Finding a Mortgage Lender that Accepts Gifted Deposits.
Most lenders will accept gifted deposits, although each of them will have different rules for acceptance. The main cause for concern for lenders is when the donor is not a relative, also gifted deposits between married couples can cause concern when both intend to occupy the property, but the mortgage and property ownership are in one person’s name. Points to Consider. It is possible that the capital gifted to you could be subject to inheritance tax if the donor dies within 7 years of them gifting the money and it is also possible that if the donor falls into financial difficulty after the money has been gifted, they may want you to pay them back. However, if the correct legal documents are filled out at the time of the gifting, you are not legally required to pay anything back.Alternatives to Gifted Deposits.
If accepting a gifted deposit doesn’t sit well with you there are alternatives to consider to help you onto the property ladder. Including:- A Lifetime ISA – this is a government scheme designed to help individuals buy their first home. The government will add 25% to your savings, up to a maximum of £1,000.
- Guarantor Mortgages – these include a person who will guarantee to your mortgage provider that you will make the payments, and if you can’t make them, they will.
- Shared Ownership – this was designed to help you get onto the property ladder and works by 25% to 75% of the property being bought by you and rent being charged based on the remaining percentage.
- A Joint Mortgage – usually with a close friend or family member, it can help increase your deposit size, which in turn increases your attractiveness to lenders.
