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Whether you're applying for a first-time mortgage or looking to upgrade to a larger property, having the biggest deposit possible will be more beneficial when finding a suitable mortgage deal. Gifted deposits are one way that mortgage applicants can increase the deposit they can offer on a property through the support of other people in their life. Here we answer the question 'what is a gifted deposit?', covering everything you need to know about gift deposits, how they work, and the pros and cons of one.
A gifted deposit is money that is given to a homebuyer to help them purchase a property. This money could contribute to an already saved deposit or cover the cost of the deposit as a whole. Gifted deposits must be genuine gifts to the person buying a home – they cannot be a personal loan or money you need to pay back in any way.
Gifted deposits are a cash gift that someone, typically a family member, provides you with no repayment expectation. The money you receive for a deposit as a homebuyer doesn't have any strings attached, and the person offering the gift will not have any legal rights to the property you buy. Gifted deposits are particularly popular for parents with children looking to get on the property ladder for the first time.find me a mortgage
There aren't any set country-wide rules and regulations on who can provide money as a gift for a deposit, but different mortgage lenders may have their own requirements. For example, some mortgage lenders may prefer that your gifted deposit is from a close or immediate relative or a partner. Others may state that it is specifically a parent-child relationship for a gifted deposit to be accepted. Many mortgage lenders won't accept gifted deposits under different circumstances, such as if a friend is offering to cover the deposit or if the person you're buying the house from is also providing the deposit.
Gifted deposits have very little difference from standard deposits, though you may need to carry out a few additional steps for a mortgage to be accepted. In some cases, lenders may ask the person gifting the money to complete a gifted deposit letter and sign it as confirmation of the relationship and written verification that the amount is a gift. Proof of ID and proof of funds may also be required from the person gifting the money.
You will always need to provide proof of deposit when applying for a mortgage. As standard, this process involves supplying supporting documents that prove the money's existence. The proof of deposit process helps lenders carry out thorough money-laundering checks to ensure the source of your deposit is legitimate.
You may be wondering if a gifted deposit is the right choice for your mortgage application. If a parent or family member has offered to contribute to cover your deposit, weighing up the pros and cons can help you decide whether a gifted deposit is a right fit for you. Here are some factors you may want to consider:
Having a gifted deposit or gifted money contributing to an existing deposit can be valuable for a few reasons. These include:
While there are many benefits to a gifted deposit, there are some downsides to consider before deciding that this kind of deposit is the right fit for you. Some of these risks include:
If a gifted deposit may not be the best fit for your circumstances, it's worth considering the alternatives. Guarantor mortgages, for example, can raise the chances of you being approved for a mortgage in some cases. Family springboard mortgages involve a family member or friend putting down a deposit on your behalf into a savings account, which they cannot move over a set amount of time. Finally, joint mortgages offer a viable option for first-time buyers, whether you choose to buy with a partner, parent or friend.
Are you applying for mortgages or considering purchasing a property? Get in touch with our friendly team for free advice about gift deposits for your mortgage application process. As industry specialists, we use our knowledge and expertise as mortgage brokers to find the most suitable deal for you. If you have any more questions like 'what is a gifted deposit?', we're more than happy to answer them.
As a mortgage is secured against your home/property, it may be repossessed if you do not keep up with the mortgage repayments.Contact Us