Saving up for a deposit on your first home doesn't have to be that difficult, if you know how.
In 2021, the bank of Mum and Dad helped 49% of first time buyers to get on the property ladder. This help is often in the form of a ‘gifted deposit’. But what actually is a gifted deposit and how do you gift it properly?
So many first time buyers can afford the monthly repayments on a mortgage but just don’t have the lump sum for a cash deposit, which is so frustrating.
That’s why many people are turning to their parents for help: enter the bank of Mum and Dad.
To give their kids a helping hand, parents or family members who can afford, and want to do so, can pay all, or part of the deposit on behalf of their children.
By helping out in this way, it can reduce the monthly repayments on your mortgage too, as it’ll give you access to more mortgage deals and better interest rates.
A gifted deposit is a sum of money that’s been strictly given to you from a family member to either go towards, or pay for the whole of your deposit.
As the money is gifted, you won’t have to pay it back, unless specifically stated otherwise. Both the buyer and the family member will have to sign a ‘gifted deposit letter’ or a ‘deed of gift’ to confirm that the money does not need to be repaid.
The letter will also state:
The person gifting the money may also be required to provide a bank statement as proof of where the money has come from. This is part of a standard money laundering check and nothing to be concerned about.
You can gift as much or as little as you’d like. The only drawback is a potential inheritance tax. If the person who gifted you the money passes away within seven years, you will have to pay inheritance tax on the amount given to you.
In most cases, no, but it may do if the money needs to be repaid, or if the person gifting the money is not a direct family member.
If you have to pay it back then most lenders will consider it like any other outstanding debt. This means you’ll have less spare money to meet your monthly payments, which can affect your mortgage affordability. However, this will all be taken into consideration at the time of applying for your mortgage.
Gifted deposits can be used in conjunction with Lifetime ISA accounts.
You may want to help your loved one buy a house, but you might not have the spare cash to do so right now (perhaps you need this money for your retirement fund). However, there are other ways you can help.
You could be a mortgage guarantor. As a mortgage guarantor, you’re basically saying that if your loved one can’t pay their mortgage anymore, for whatever reason, you’ll step in and pay it for them. You can do this by either offsetting your property, or a savings account, against their mortgage. Read our article ‘What is a mortgage guarantor?’ to find out more.
Or you could consider releasing equity from your house to raise the money, but make sure you seek advice from a qualified professional first.
Overall, gifted deposits can take a huge weight off your shoulders and give you the chance you need to finally buy a house!
If you’ve accepted a gifted deposit, or perhaps you’re the one considering gifting money to help a loved one, feel free to get in touch with our team and we can answer any questions you might have about this process.
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 upon your circumstances.
The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.