If you are thinking of buying a home in the UK, you know that it isn’t a piece of cake. The competitive market and the hefty deposit requirements feel like climbing a rocky mountain. But what if a family member can help? In such cases, family members can give you something called a “gifted deposit” to provide you with some financial support. 

Whether you’re a potential recipient, a generous family member, or simply curious, here’s everything you need to know about gifted deposit mortgages​.

What are Gifted Deposits?

When applying for a mortgage, a deposit is one of the most significant factors. Offering to pay high deposits can unlock many benefits. Number one is that you come across as an appealing borrower and lead to better terms like low interest rates. 

Gifted deposit is pretty self-explanatory. It is a gift of money to specifically use as a down payment on a property. It is not the same as a loan as there is no expectation of repayments. Young buyers who are usually first timers too, often get gifted deposits from parents or grandparents. This external help enables them to afford a property more smoothly.

What is a Gifted Deposit Declaration or Letter?

To maintain transparency, the gifter has to sign a gifted deposit declaration. This formally acknowledges that the money is a gift, and there are no obligations of repayment or legal interest in the property.

Lenders look at gifts and loans very differently and failure to provide a proper deposit declaration may lead to delays or even rejection. Both parties need to sign the letter. Provide it attested to your application and make sure every detail is correct.

Who Can Give a Gifted Deposit?

Not everyone can give you a gifted deposit. Most UK lenders only accept gifts from blood-related family members. This could be your parents, grandparents, and siblings. Extended family members are also accepted in many cases. However, accepting close friends as gifted deposit providers is usually rare. It all boils down to the lender’s policies as they may refuse gifts from non-relatives due to the fear of a complex arrangement. 

How Does a Gifted Deposit Work?

The purpose of a gifted deposit is simple. It will provide the buyer with an amount of money to help ease the financial responsibilities in the home-buying process.  This can be part or all of the down payment. The larger the deposit, the loan-to-value ratio would get lower and can result in good mortgage rates and terms. 

Lenders must be informed about all the details of your gifted deposit. They should know that it is clearly a gift and not a loan disguised as one and that there are no chances of unexpected financial burdens on the borrower like loan repayments. Gifted deposit mortgage lenders do not want to be associated with that.

Are Gifted Deposits Common in the UK?

Reports suggest that over half of first-time buyers received some form of financial help from family or friends in 2023. So yes, tapping into the “Bank of Loved Ones” is common in the UK. As property prices rise faster than wages, young buyers are relying on their families to climb up the ladder. It is okay to depend on your family for a bit to be independent in the future. 

Does a Gifted Deposit Affect the Lender’s View?

Usually, lenders look at gifted deposits positively as they reduce the amount of money a buyer needs to borrow. However, they do require full transparency regarding the source of the deposit and need to ensure that all the financial obligations are clear and met. Any suspicious information will not look good to your lender so a gifted deposit declaration should be accurately submitted. 

Do Lenders Have to Allow Gifted Deposits?

Unfortunately, there is no rule that lenders have to allow gifted deposits, they can decline according to their policy. Most UK lenders are okay with deposits gifted by immediate family members but you may face objections in the case of a friend or distant relatives. Gifted deposit mortgage lenders​ can be strict about who can provide the gift, and some may require additional documentation to understand the legitimacy. Check with your lender so that you can prepare beforehand.

Problems with Gifted Deposits

While gifted deposits can be extremely beneficial, there may be a few issues. One of the biggest concerns is the potential tax implication. If the gifter passes away within seven years, the inheritance tax, also known as IHT, could be an unexpected financial burden. The first £325,000 of an estate is exempt from IHT in the UK. However, if the gift-giver survives for more than seven years after the gift, you won’t need to worry about inheritance tax. Therefore, it is important to consider it while planning to accept a gifted deposit. 

Secondly, the legalities surrounding the gift. It is of utmost importance that all the documentation proving the deposit is a gift should be transparent. Any ambiguity can lead to unnecessary complications. Documentation also protects you from any unfair expectations in case your gifter changes their mind.

Lastly, gifted deposits are usually a significant amount of money. When such a gift is presented, all parties must discuss the arrangement openly and understand the effects on their financial security. 

What You Should Do: 

There are a few things that you have to do to make sure the process is done carefully and all parties involved have a smooth experience.

• • Seek professional advice. Consult a mortgage broker and a financial adviser as they will help you understand how gifted deposits influence your application, taxes, and financial plans beyond the surface level.
  • Plan for inheritance tax. If the gifter is concerned about potential inheritance tax, consider estate planning or consulting a tax advisor to mitigate this risk.
  • Clarify lender requirements. Understand in detail the policy of your lenders and what they are willing to accept and not accept before you submit your gifted deposit declaration. Make sure you know what documentation is required. 

• Communicate openly. This deserves the highest priority. To avoid any misunderstanding, freely discuss the arrangement with your family member or the gifter and address any valid concerns. 

Conclusion

A gifted deposit mortgage can be a saviour for many who are trying to buy their dream home in the UK’s current competitive house market. It is also a brilliant way to support your family members and loved ones. And if you are successful in understanding and managing all the factors, it can lift a big financial burden off you. 

If you are looking to buy a home with the help of a gifted deposit, seeking professional advice is recommended. Our team at UK Mortgage Finder are experts who understand the ins and outs of gifted deposits. Let us guide you through all the complexities of the gifted deposit mortgage​ and find the best possible deal for you. Contact us today!