Written by: Danny Belton - Head of Lending
Before you jump into house hunting, there are some key things to remember and steps to take to ensure a smooth and secure journey.
What is a gifted deposit?
Let’s start with the basics and discuss what a gifted house deposit is.
Simply put, a gifted deposit is when family members give you money towards your deposit. They can give as much or as little as they would like, but be aware of potential inheritance tax.
A deposit is usually at least 10% of a mortgage. With a property costing £240,000, this means you’ll need to have at least £24,000 ready to pay your deposit. A gift can help a lot towards this.
A gifted deposit means you’ve been given money towards, or to fully cover, your deposit amount. This is not a loan, nor does the person giving you the money have any stake in your property. The money must be given freely, with no requirement or expectation of repayment at any time in the future.
How much can I borrow with my gifted deposit?
If you've been gifted a deposit amount, use that figure in our borrowing calculator to get an idea of how much you could borrow.
Understand the legal implications
No repayment is expected for a gift, and this needs to be declared. Your mortgage adviser, lender, and conveyancer will require a gifted deposit letter signed by the donor, stating:
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Their name and yours
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The amount gifted
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Confirmation it's a gift with no expectation of repayment or stake in the property
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A statement that the gift has no commercial interest
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Confirmation that the gift giver is financially solvent and in a position to provide the gift.
Important information
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.
Get the paperwork in order
The donor will likely need to provide proof of ID and source of funds, like bank statements showing the origin of the money. You will also need confirmation that the money is clean and legal, potentially involving additional checks.
Be transparent with your mortgage adviser
Inform your adviser and lender early on about the gifted deposit. Different lenders have varying standards and restrictions around gifted deposits, so it’s important to be transparent. Be prepared to answer questions about the source of the gift and your relationship with the donor.
Consider tax implications
While unlikely, there could be potential Inheritance Tax implications depending on the amount gifted and the donor's circumstances. At Mortgage Advice Bureau, we do not give tax advice, and so speaking to a solicitor would be the best course of action.
What happens if the gift giver dies - is inheritance tax due?
If you’re accepting a lump sum gift as a type of ‘living inheritance’ from an older relative, there’s a few things you need to be aware of. If they die within seven years of providing you the gift, the estate may have to pay inheritance tax on it. Of course, this risk lies with a gift provided by someone of any age, but statistically older people are more likely to pass away during the seven-year inheritance tax period.
They also cannot be seen to be ‘depriving themselves of capital’. For example, if by giving you the gift, they would then qualify for certain state benefits, this could cause significant complications.
By following these steps and seeking professional advice where needed, you can ensure your gifted deposit helps you achieve your homeownership goals smoothly and securely.
Get expert mortgage advice
If you’re unsure if your deposit is enough for a mortgage, we’re here to offer award-winning advice. Our mortgage advisers will guide you through deposit requirements, assess your finances, and find the right mortgage options for you. Kick off your homebuying journey and get mortgage-ready by getting in touch today.
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