Saving up for your deposit on your first home is hard enough at the best of times, let alone during a cost of living crisis. That’s why we’re seeing more and more first time buyers utilising gifted deposits to help them make their way onto the housing ladder. We’re here to break down what these gifted deposits are and provide tips on how to navigate the legal implications along the way.
With the sharp rise in house prices over the last few years, first time buyers are now needing to gather bigger deposits than usual in order to secure mortgages for their homes. According to Statista, the average first-time buyer deposit in the UK last year was just over £53,000, pushing many first time buyers down the route of acquiring gifted deposits to help them get their first step on the property ladder.
A gifted deposit is essentially what it says on the tin – a financial gift given to you to put towards your deposit, usually from a relative or close friend. Gifted deposits can provide either some or all funds of your mortgage deposit, depending on your specific circumstances.
Although some mortgage lenders will offer you a loan deal with a deposit as little as 5%, many lenders now prefer bigger deposit payments. A gifted deposit can help boost your savings and allow you to put down a larger initial deposit, in turn reducing your monthly mortgage repayments and giving you access to a wider range of cheaper mortgage products.
If you’re fortunate enough to have been offered a gifted deposit from someone, you’ll have to provide proof to your mortgage lender that the money has actually been gifted to you without any expectation of repayment from the gift’s donor. This proof is normally presented in letter form and signed by the person(s) gifting the funds to you, basically explaining that the money you’ve been sent is intended as a gift. Speak to one of our Green Mortgage experts today to ensure that your gifted deposit letter is fully and legally sufficient.
Each and every mortgage lender may require different information from your gifted deposit letter. In general, you’ll need to include these details within your letter:
Despite the amazing benefits of receiving a gifted deposit from family or friends, this financial gift does pose potential implications to receivers and donors alike. In the unfortunate event of a personal fallout or financial difficulty, the donor won’t be able to claim their money back as legal paperwork has been signed and completed.
It’s also worth noting that if your gifted deposit donor passes away within seven years of granting the funds, the gifted deposit could be subject to inheritance tax if their personal estate falls within tax thresholds. Our Green experts are on hand to answer any questions if you are uncertain about any part of the gifted deposit journey.
Confirm the gift with a gifted deposit letter
Provide your solicitor with a gifted deposit letter that confirms the deposit has been gifted to you. The letter should lay out that the giver has no right to the property. Make sure to include details about who has gifted you the money and how much they are giving you towards your home.
Your solicitor needs to check where the funds have come from. This might be from the sale of a house or other asset, sale of shares or a pension. It may also be something they have inherited from another relative.
For any questions on gifted deposits or any other step within your mortgage journey, please reach out to our helpful and friendly mortgage experts.
