How much can you gift for a mortgage: definitive guide

One of the biggest challenges for buying a home is saving up a deposit, particularly as property prices have continued to rise in recent times. Some people have the option of parents lending a hand by supplying a gifted deposit to help with the purchase. But how much can you gift for a mortgage and what other rules are there around large cash gifts for buying a property?

Read on to learn more.

How is a gifted deposit defined?

A gifted deposit is a sum of money given by and individual - typically a family member - as a gift to be used as a down payment to buy a property. It could cover the entirety of the deposit or just a portion of it.

The money is not considered a loan, and there must be written confirmation that the money does not have to be repaid. The person providing the gifted deposit can have no stake in the ownership of the property - their name will appear neither on the deeds nor the mortgage itself.

The process usually goes something like this:

1. Reach an agreement with your donor - it is usually a parent or other close family member, and you agree on the amount to be gifted towards the deposit.
2. This amount is added to the savings you have already accumulated to be put down as the full deposit for purchasing a property.
3. When arranging the mortgage, a formal letter will be compiled to legally confirm that the funds are a gift. It will explain the origins of the money and specify that there is no obligation to repay it. Different lenders have slightly different criteria for gifted deposits so seek advice.
4. Once the gifted deposit is accepted by the lender, the transfer can happen and the purchase can go ahead.

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What exactly is a gifted deposit letter?

A gifted deposit letter is written, legally-binding proof that the funds for the deposit are a gift and not a loan. It certifies who the donor is and where the money comes from, and confirms that they can afford to supply the gift with no obligation for repayment nor any stake in the property ownership.

Most banks and building societies have a template gifted deposit declaration that the relevant parties can fill out. Some smaller lenders may request a certified letter, which will need to be signed and dated by the donor with a witness present. It needs to include the following:

• The name of the individual providing the gift
• The donor's relationship to the recipient
• The amount of money being gifted
• Confirmation that there will be no obligation to repay
• Confirmation that the donor will have no stake in the property
• Evidence that the donor is financially solvent

Some personal documents will also need to be supplied by the donor. These include things like photo ID, proof of address and bank statements to meet anti-money laundering requirements. Gifted deposits usually come from parents or grandparents, and lenders tend to have different criteria on who else is acceptable as a donor.

How much can you gift for a mortgage?

Unless the lender stipulates otherwise, there is no specific limit on the amount of money that can be given as a gifted deposit. However, if the donor dies within 7 years of giving the gift, it could be subject to inheritance tax.

If the donor dies within that timeframe, inheritance tax could come into play if the estate is worth more than £325,000. The gifted deposit (or a portion of it) may be considered as part of the estate. A £3,000 tax-free gift can be given every year - this is known as your annual exemption. If you received this sum every year for several years and built it up in a savings account, it would not need to be declared as a gifted deposit and would not be subject to inheritance tax.

What are the pros and cons of gifted deposits?

Pros

• The homebuyer can get a foot on the property ladder sooner than if they did not receive the cash gift.
• A larger deposit means the buyer will need to borrow less on their mortgage, opening the door to lower mortgage rates.
• The gifted deposit may not be subject to tax.
• The gifted deposit is free from any legal financial ties between the two parties.

Cons

• Gifted deposits have the potential to cause problems between the donor and recipient should there be a falling out or the donor falls into financial difficulty later on.
• Inheritance tax can apply if the donor dies within 7 years.

What alternatives are there to a gifted deposit?

There are some other routes to take to help with building a deposit for a property purchase:

Mortgage guarantor

A parent (or grandparent) who is a homeowner could act as a guarantor, making them liable for covering your mortgage payments should you be unable to make them.

A loan

You may be able to get an interest-free loan from a family member. However, lenders will often treat this the same as a personal loan, so it could imapct your affordability.

Lifetime ISA

This tax-efficient government scheme offers bonuses on your savings to help first-time buyers save for getting a mortgage.

Get expert advice on gifted deposits and much, much more

WIS Mortgages are a professional mortgage advisor in Kent, London, Essex and Buckinghamshire. We offer free advice with zero fees and we cover the whole of the UK. We also offer specialist advice for contractors whose self-employed status may throw up additional hurdles to overcome.

Gifted deposits can be a valuable asset for many to get on the property ladder, but they are not an option that is available to everyone. If you are in need of advice on how to get a mortgage and buy your dream property, contact WIS Mortgages today and get started.

Please note this article/blog is for general information only and does not constitute advice. As a mortgage is secured against your property, it could be repossessed if you do not keep up the mortgage repayments.

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