Gifted Deposit Mortgage

Podcast approved by The Openwork Partnership on 05/02/2025.

What is a gifted deposit and how does it work?

It’s exactly what it sounds like. It’s someone gifting the money that you’ll use for the deposit on the purchase. It’s typically done by family members – normally mum and dad. You then use this as the deposit on the property you’re looking to buy.

Can I use a gifted deposit as a First Time Buyer?

Absolutely. Gifted deposits are available to First Time Buyers, not a problem at all.

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

Yes, the majority of lenders do, including the high street lenders you’ll come across when you’re sourcing a mortgage. The main criteria for a gifted deposit is that it has to be a non-repayable gift. It’s not a loan. It is purely a gift used to purchase the property.

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

Yes. Some lenders already have a template where you’ll fill in the details. With some lenders you draft your own. Gifted deposit letters usually include who the donors are, their names and their relationship to you as the person being gifted the money.

They confirm how much the deposit is and that it is a non-repayable gift. It needs to state they will hold no financial interest in the property, that it’s not a loan or an investment for them. It is purely just a gift for you to use to buy the property.

Can I only receive gifted deposits from family members?

Typically, family members are the most common. Some lenders open it up to anyone, so you can have it gifted from a friend, while other lenders only accept close relatives.

If you’ve got a gifted deposit coming from an unusual source, the best thing to do is give us a call and we can talk through your options.

Is there a limit on how much can be gifted?

No. The gift can be of any size the donors are willing to gift you.

Do you have to pay tax on a gifted deposit?

We’re not tax advisors or tax specialists. My advice would be to speak to an accountant and have a chat with them and see if there is any liability you’d be due.

What will happen if a gifted deposit is not declared?

Part of the mortgage process is looking at the source of the deposit. If it’s not declared as a gift, that could potentially cause issues. When it comes to mortgages, it’s always better to be upfront and honest from the start – just make us aware of everything so that we can source the appropriate mortgage.

The last thing you want is not to have declared it correctly and it turns out to be a problem for the lender. Then, suddenly, you might have to look to find a new lender at a late stage of the house buying process. So always be upfront.

How do solicitors check the source of funds?

They have their own checklist and their own process to follow. Just make the solicitor aware that it’s a gifted deposit and they’ll do the appropriate checks.Typically they will want ID from the donors and likely bank statements showing where the funds originated before being gifted for Money Laundering checks.

How many bank statements do I need for a gifted deposit?

I always ask for three months bank statements, along with that gifted deposit letter. It might be that the money is not yet in your bank account and your parents, or whoever’s gifting the money, are holding on to that.

That’s where the gifted letter really comes into use. The lender may request more statements as we go through the process.

What is the seven year rule for gifted deposits?

That’s something I would speak to your solicitor about. Have a chat with them and they’ll give you the appropriate advice and guidance, However, it relates to Inheritance tax, whereby there may be a liability to pay inheritance tax if the person giving the deposit dies within seven years of making the gift.

What is the alternative to a gifted deposit?

It’s building up your own savings, or money from other properties. The alternative is just you putting the cash down, as opposed to it being gifted from a family member. There is also sometimes an option to use a personal loan for deposit, but in that instance the repayments on that loan are factored into the affordability assessments on the mortgage.

What are the pros and cons of a gifted deposit?

I wouldn’t necessarily see there being a con or a pro to it. It’s obviously incredibly useful, particularly for First Time Buyers, if family members like mum and dad step in and help them get onto that property ladder.

I wouldn’t really see any kind of advantage or disadvantage to it. The bigger deposit you have, the lower the Loan to Value category you’ll fall into – which then hopefully means better interest rates and, in some cases, better affordability. That’s definitely a positive.

How can a mortgage broker help? Have you got anything else to add?

We’ve covered off a lot on gifted deposits. There’s not really much else to it – it’s just how you’re funding your deposit to buy a property. As always, if there’s anything you’re uncertain of, give us a call. We’ll talk through the options and explain the process and how it will work.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Approved by The Openwork Partnership on 05/02/2025.