Gifted Deposit Mortgages
Gifted Deposit Mortgage Advisors.
Getting onto the property ladder can be tough. Firstly, prices are increasing and so are the deposit levels needed. Secondly, it may seem virtually impossible for first-time buyers to save a deposit. However, a mortgage with a gifted deposit may be a viable solution for you with the right advice.
As such, gifted deposit mortgages are one of the most common ways first-time buyers are able to get onto the property ladder.
This article will outline everything you need to know about getting a mortgage with a gifted deposit. If you have any further questions or would like to discuss your circumstances with a mortgage expert, please don’t hesitate to get in touch with our team today.
Scroll down for more information and FAQ’s.
Updated 4th April 2021
What is a gifted deposit mortgage?
A gifted deposit mortgage is when money is gifted to you towards your deposit. This can either be the entire amount or just a portion of your deposit. The gifted deposit can come from family or friends.
Each lender has slightly different criteria around who they will allow a gifted deposit from. Some lenders will only allow it from close family members.
However, the source of any gifted deposit for a mortgage will be closely looked at. Anti-money laundering rules ensure that the gifted deposit must have a clear paper trail. Your mortgage broker & solicitor will want evidence and documents to prove the money is from a legal source.
If a deposit is loaned to you, this is not a gift. This would not be acceptable for most lenders. If you are unsure on anything around a gifted deposit mortgage, always speak to a mortgage broker first.
How much of a mortgage deposit can be gifted?
For example, It’s possible, but not guaranteed for the whole amount to be a gifted deposit. However, your individual circumstances will determine if this is possible.
The more complex your situation, the more this will affect which lender will be available to you. Specialist lenders will typically want you to put in 5% of your own money towards the deposit together with the monies for the moving costs. However, this is not the case with all specialist lenders. Getting a full understanding of your whole circumstances will determine which options are best suited for you.
Furthermore, your mortgage expert will be able to give you tailored advice for your circumstances. Get in touch with our team if you’d like to learn more.
Mortgage deposit from family.
This is the most common type of gifted deposit. For instance, many parents are now helping their children onto the property ladder with a gifted deposit for a mortgage. The gifted deposit can also come from siblings & grandparents, generally, this is accepted by most lenders. You may also see this spoken about as ” bank of mum and dad”
For the most part, the more distant the family member, such as uncles, aunties, or cousins, the more care needs to be taken. As a rule, not all lenders will accept this type of gifted deposit from those family members. Always check with your mortgage advisor beforehand.
Are gifted deposits from friends acceptable?
To begin with, these types of gifted deposit are riskier from a lenders point of view. Ordinarily, the feeling is, there is more chance of this being a loan and therefore more susceptible to money laundering.
There are certain lenders which will accept this type of deposit. The paper trail will need to be closely inspected by the lender, in order to determine that the gift is genuine.
With gifted deposits from friends, one thing to keep in mind is that the number of lenders will be limited, in short, this could affect the rates being offered to you.
How to get a mortgage with a gifted deposit.
The process is a quite simple one if followed in the correct way. In particular, always speak to your mortgage advisor first before you start getting any gifted deposit.
All lenders will want some form of gifted deposit letter, some will have their own template, others will not. The information required on the letter will all be similar:
- Name of the person gifting the deposit.
- The amount being gifted.
- Property address.
- Mortgage lenders name & address.
- That the person gifting the deposit has no interest or rights to the property.
- Stating it is a gift and not a loan.
- Source of the deposit – i.e. savings.
- Signed and dated by all people gifting the deposit.
*There may be other criteria dependent on the lender.
Can I use a gifted deposit and gifted equity?
Yes, some lenders will allow you to use gifted equity also known as a concessionary purchase and a gifted deposit. The high street lenders will have more options then than the specialist lenders, at present there are a couple of specialist lenders who will allow this type of purchase. The person gifting the equity will also need to take independent legal advice. Another consideration will be that it it not a distressed sale, i.e. someone selling the property due to financial distress.
Documents for the gifted deposit.
Usually, the persons gifting the deposit will also need to provide some documentation to the lender and solicitor. Namely, they will be:
- Proof of identity – passport or driving licence
- Bank statements showing the funds
- Proof of address – recent utility bill or bank statement.
- Gifted deposit letter – stating it’s a gift and not a loan.
Documents are required due to anti-money laundering regulations.
If the gift giver dies – is inheritance tax due?
When you are accepting a lump sum gift as a type of ‘early inheritance’ from a relative, there are a few things you be aware of. If they die within seven years of providing you the gift, you may have to pay inheritance tax on it. This is especially important if it’s from an older relative such as grandparents.
Another important factor is, the gifter cannot be putting themselves into financial difficulty. For example, if by giving you the gift, they would then qualify for certain state benefits, if this was the case there would be issued raised. Always speak to you mortgage advisor and explain the whole situation to them.
Vendor & Landlord gifted deposits.
An example is when a landlord is selling the property to the tenants. Hence they are already in the property and have a good relationship with the landlord, then sometimes the landlord will sell them the property below market value.
However, there are instances where a vendor wants a quick sale and will reduce the property price (discounted purchase price). However, lenders will want to check that its not a distressed sale and the property is worth the full market value.
Vendor gifted deposits are not common in comparison to gifted deposits. As such, not all lenders will allow this sort of gifted deposit. There is a limit to the amount of discount accepted and the lenders will generally want you to put a certain % of the deposit money in.
Speak to your mortgage advisor who will be able to give you tailored advice for your circumstances.
House builders gifted deposit.
As a rule, this sort of gifted deposit is normally from new build builders, these can also be known as developer gifted deposits. Generally, these are used as an incentive to generate a quick sale.
Lenders will have a limit on the % they will accept. Generally, new builds are perceived as higher risk and hence more deposit will be required. The Help to Buy scheme means you can get a new build with 5% deposit. You can read more about the Help to Buy scheme here.
Can I use a guarantor?
Instead of a family member gifting you a deposit for a mortgage, the other option is to act as a guarantor. However, this is riskier for the person acting as the guarantor, furthermore they are responsible for any missed mortgage payments.
Another option is the family springboard mortgage. This is where a family member or friends puts money into the lenders accounts as a deposit. Thereby, they will earn interest and the money is returned to them after 5 years. To read all about family springboard mortgage click here.
Gifted deposit for a bad credit mortgage.
With any bad credit mortgage, the lender will look at the profile of the whole case. Generally, the more complex the situation the more this will impact any mortgage application.
In short, it is possible to get a bad credit mortgage coupled with a 100% gifted deposit, but the options will be limited and this will be reflected in the interest rate offered. Always speak to your advisor before making any decisions. For example, we had a client who had a £10,000 hire purchase agreement , they were going to pay this off with their own funds ( which they had saved) and use a gifted deposit from parents for the deposit. The best way would be for parent to pay off the hire purchase, wait for the credit report to update and use the £10,000 of their owns funds for a deposit.
Ordinarily the best advice is to get an updated copy of your credit, you can do so by clicking here.
Can I get a buy to let mortgage with a gifted deposit?
The criteria for a gifted deposit mortgage buying a buy to let is simple. Likewise, most lender require the same paperwork as residential mortgage
however, some lenders will have a restriction on the relationship between you and the gifter. For the most up to date information contact us today. To read all about buy to let mortgages click here.
Can I get a gifted deposit mortgage in Scotland?
Yes, the mortgage advisors we work with are vastly experienced in arranging gifted deposit mortgages especially in Scotland. For instance, gifted deposit mortgages in Scotland follow the same principal as the rest of the UK.
To access the very best deal for your gifted deposit mortgage, contact us today.
Speak to a gifted deposit mortgage advisor.
Because we are specialist gifted deposit mortgage advisors; our experts can help you to find the right gifted deposit mortgage on the market to meet your specific requirements. From big high street banks and building societies to smaller, more niche lending companies, there is a lot of choice out there.
The brokers we work with are whole of market and offer completely unbiased advice – ensuring that you get the absolute best deals available. If you are looking for mortgage advice, fill out a contact form online or call us now on 0300 124 5655