Get a Mortgage with a Gifted Deposit as a First-Time Buyer
Getting your foot on the property ladder can feel like an uphill battle, especially when house prices continue to rise faster than wages.
For many first-time buyers, the biggest hurdle is saving enough for a deposit. But if a family member is willing to help, a gifted deposit could make all the difference.
This approach has become increasingly common and, when used correctly, it can help you get a mortgage sooner and potentially access better rates.
What is a Gifted Deposit?
A gifted deposit is a sum of money given to you by someone else, typically a close family member, to help fund the deposit for your home purchase.
It can cover a portion of the deposit or the full amount, depending on your circumstances and the generosity of the person gifting it.
The key thing to remember is that the money must be given with no expectation of repayment. This isn’t a loan, and the person providing the gift won’t have any legal stake in your property.
Gifted deposits are particularly helpful if you’ve struggled to save while renting, or if you want to access better mortgage deals that come with a larger deposit.
Can You Use a Gifted Deposit as a First-Time Buyer?
Yes, you absolutely can. In fact, many first-time buyers rely on financial help from parents or other relatives to boost their deposit.
Lenders are generally comfortable with this, as long as the right paperwork is in place. It’s common for lenders to request a signed declaration confirming that the money is a gift and that there’s no expectation for it to be repaid. They also need to fully understand the origination of the funds, to comply with anti-money laundering g requirements. This may mean requesting extensive bank statement history of the giftor.
This protects all parties and ensures the lender can accurately assess your affordability.
At Kerr & Watson, we can help ensure your gifted deposit is declared and documented properly, so you avoid any issues during your mortgage application.
Who Can Gift a Deposit?
Most lenders prefer that a gifted deposit comes from a close family member such as:
- Parents or step-parents
- Grandparents
- Siblings
- A spouse or long-term partner
Some lenders may accept a gift from more distant relatives, but they’re often more cautious.
Gifts from friends or the person selling the property (the vendor) are usually not accepted, as this can raise concerns about conflicts of interest or artificial property pricing, however there are some lenders that consider this.
When you contact Kerr & Watson, we’ll help you look for lenders whose criteria align with your specific situation and the source of your gifted deposit.
Find out Your Options
How Does a Gifted Deposit Work?
The process is fairly straightforward. The person giving the gift transfers the money to your account, usually before the mortgage application is finalised. They will then need to sign a gifted deposit letter, which includes key details such as:
- Their full name and relationship to you
- The amount being gifted
- Confirmation that the money is a gift with no repayment expected
- A statement confirming they have no legal interest in the property
- Proof that they can afford to make the gift
In addition, they will likely need to provide ID and proof of address, along with bank statements showing the source of the funds. If the funds have arrived recently from another source, this would need to be checked too, to follow the funds and understand the origination.
This is part of the anti-money laundering checks that all lenders and solicitors are required to carry out.
What Are the Benefits of a Gifted Deposit?
There are several advantages to using a gifted deposit when applying for a mortgage:
- Smaller mortgage required: The more deposit you can put down, the less you’ll need to borrow, which reduces your monthly repayments.
- Access to better deals: A larger deposit may open the door to lower interest rates and a wider choice of lenders.
- Get on the ladder faster: If saving a full deposit is taking years, a gift can significantly speed up the process.
Some buyers combine a gifted deposit with their own savings, giving them an even stronger position when applying for a mortgage.
Do You Have to Declare a Gifted Deposit?
Yes. You must declare a gifted deposit to your mortgage broker and lender at the earliest opportunity. Being transparent avoids delays later on and ensures that your application is handled correctly.
The gift also needs to be declared to your solicitor, as it may affect the legal process of the property transaction. Your solicitor will ensure that the required gifted deposit declaration is signed and submitted.
Are There Any Tax Implications?
Gifted deposits are not usually subject to tax at the time they’re given. However, there could be future inheritance tax considerations if the person gifting the deposit passes away within seven years of making the gift. If the total estate is large enough, the gift may be counted as part of it for inheritance tax purposes.
While this won’t affect your mortgage application, it’s something the person gifting the money may wish to consider and we recommend that you always take professional tax advice when gifting funds or plan to receive them.
Alternatives to Gifted Deposits
If gifting isn’t an option for your family or you’d prefer a different route, there may still other ways to get help with your deposit:
- Guarantor mortgages: A family member guarantees your mortgage repayments if you cannot keep up with them.
- Joint borrower sole proprietor mortgages: A parent can be on the mortgage but not on the deeds, helping boost affordability without incurring extra stamp duty.
- Family springboard or boost mortgages: A relative places savings in a linked account as security instead of gifting money directly.
We’ll talk you through these alternatives if they’re better suited to your situation, as different routes suit different people.
What Happens If the Gift Giver Changes Their Mind?
Once the money has been transferred and the mortgage process is underway, it can be difficult to reverse the decision.
This is why it’s essential for the gift giver to be absolutely sure they are comfortable parting with the funds. Having the proper declarations in place helps avoid any future misunderstandings.
If you’re ever unsure about how a gifted deposit might impact your application, speak to us.
How Kerr & Watson Can Help
We’re experienced in helping first-time buyers secure mortgages using gifted deposits. We’ll guide you through the process, explain what each lender requires, and match you with the most suitable options. Our aim is to make the journey to homeownership as smooth and stress-free as possible.
We understand how important it is to get things right the first time. With access to a wide range of mortgage products and lenders, we’re able to look for a solution that works for you, even if your situation is a little more complex, as long as you meet the criteria of relevant lenders.
Conclusion
Using a gifted deposit can make homeownership a reality sooner than you might have thought possible.
It can reduce your borrowing, unlock better mortgage deals, and give you a financial head start. However, it’s important to ensure everything is done correctly, from declarations to documentation, and to understand any implications involved.
Get in touch today for independent advice.
