What is a gifted deposit and is it the right fit for me?

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.

What is a gifted deposit?

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.

How does a gifted deposit work?

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.

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Who can gift a deposit?

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.

How does a gifted deposit affect the mortgage process?

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.

Do you need proof of deposit for a gifted deposit?

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.

Is a gifted deposit a good idea?

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:

What are the benefits of a gifted deposit?

Having a gifted deposit or gifted money contributing to an existing deposit can be valuable for a few reasons. These include:

• More options for mortgages: A larger deposit can provide more opportunity to access suitable mortgages, with a gifted deposit increasing the amount you can offer to find something better suited to your needs.
• Cash needed to purchase: If you have been unable to save for a house deposit yourself, a gifted deposit can allow you to purchase a home where you wouldn't have been able to raise the cash solo.
• Supplementing your deposit: If you already have some of a deposit saved, but you'd like to buy as soon as possible, a gifted deposit can supplement that amount to reach the necessary percentage deposit for specific mortgages.
• More freedom for buying: The deposit you can save can be a key factor in determining your affordability and the value of the house you can purchase - a 5% deposit on a 150k house is more than one on a 50k flat, for example.

What are the risks of a gifted deposit?

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:

• Less mortgage acceptance: Not all lenders will accept a gifted deposit, and there is no legal obligation for you to do so, which may limit the suitable mortgages available to you.
• Stipulations on gifting: Many mortgage lenders will prefer gifted deposits to come from parents or immediate families, which means gifts from friends and non-immediate family may not be accepted.
• Complexity and paperwork: Anyone that gifts you a deposit will need to complete a gifted deposit letter and undergo certain checks, which becomes more complex the more gifts you receive.

What are the alternatives to a gifted deposit?

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.

Start your mortgage application with a gifted deposit today

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.

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