Gifted deposit Buy to Let mortgage
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Gifted deposit Buy to Let mortgage
Anthony McQuilliam talks to us about using gifted deposits for a Buy to Let mortgage.
Podcast approved by The Openwork Partnership on 18/12/2024.
Can I get a Buy to Let mortgage with a gifted deposit?
Yes, this is something that you could do, but some lenders may have an issue with it. We’ve had a few clients that have tried to purchase property via limited company, but some lenders are not fully happy with you buying under a limited company name using a deposit you haven’t saved up yourself.
It is doable. There are lenders that allow you to get a Buy to Let with a gifted deposit, but others are very strict. If they don’t like where your deposit has come from, they will simply decline the mortgage – even if everything else looks perfect.
Can I use a gifted deposit as a Buy to Let First Time Buyer or first time landlord?
Yes, but again it depends on the lender. Not a huge number of lenders will lend to you if you are a First Time Buyer for Buy to Let. Luckily enough, though, there are a few lenders here that are happy for you to receive a gifted deposit to buy your first Buy to Let property.
What are the Buy to Let mortgage eligibility criteria for a gifted deposit? Do all mortgage lenders accept gifted deposits for Buy to Let mortgages?
For the mortgage itself, lenders still assess things exactly the same way as for a standard Buy to Let mortgage. They look at the rental income, tax and that the property will be easily rented in the future. They also check that your credit is okay and that your income all stacks up based on their criteria.
The only slight difference with this kind of mortgage is that some lenders will just decline the mortgage application if you have a gifted deposit. Often the limited company lenders are a bit harsh on that.
It also depends on where the gifted deposit comes from. Most lenders are fine with a gifted deposit from an immediate family member such as your parents, brothers or sisters. It’s when you’re getting a gifted deposit from a friend or another family member that lenders may kick the application back.
Do I need a gifted deposit letter for a Buy to Let mortgage? If so, what will need to be included in it?
If you’re looking at buying a property and you have a gifted deposit, most lenders will want proof that this is a gift and not a loan. A deposit that’s being loaned to you needs to be keyed in as an outgoing for the mortgage. Also, not all lenders will accept you if your deposit is a loan.
A gifted deposit letter would usually need to say something along the lines of “I hereby gift my son/daughter £XX,000 to buy X property. The funds I’m giving him/her are a gift. This is not a loan and requires no repayment.
You also need to make sure that you include that the gift-giver doesn’t own any interest in the property. Every lender has slight variances around that, but that is the gist of what needs to be in the letter. When you speak to a mortgage broker to assess which lender you should go to, they’ll be able to help you on the content for the gift letter.
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Can I only receive gifted deposits from family members for Buy to Let?
If you receive a gifted deposit from a family member, it opens up the door to more lenders. They are often more laid back when it comes to Buy to Let with a gifted deposit from a family member. If the deposit is coming from a friend, colleague or more distant relative, there are still lenders who will do that, but it massively limits the options.
Is there a limit on how much can be gifted for a Buy to Let deposit?
There’s no limit as to how much could be gifted for a Buy to Let deposit, but regardless of how much it’s for, the lenders will want to see the paper trail of where the funds have come from. They need to make sure every penny has been documented, that it is a gift and they could trace the source funds.
As long as they could do that, most lenders are absolutely fine and there’s no maximum deposit.
What will happen if a gifted deposit is not declared for a Buy to Let mortgage?
If a gifted deposit is not declared for a Buy to Let mortgage when you’re making the application, it will come to light when it gets to the solicitor. They have to trace the source of funds, and will notice that the funds are coming from a gift. They will have conversations to make sure the lender is fully aware of that.
As an example, perhaps you receive a gifted deposit from a non-immediate family member and the lender is not made aware of this. You could get right down to the completion date – where you’ve gone through the entire process, paid your legal and valuation fees, you’ve paid your broker. But potentially the lender could kick this application back at this final stage.
You’re then going to need to start the process from scratch. Doing that so late in the day means you run the risk of losing that property.
How do solicitors check the source of funds?
They would look at the proof of funds from the applicant’s bank statements, and also the proof of funds from the gifter. If the funds are from the sale of a property, they may want to look at the memorandum of sale. If it’s from savings or income built up overtime, the lender will ask for extra documents to prove that.
What are the alternatives to a gifted deposit for Buy to Let mortgages?
If you haven’t got anybody to give you the deposit, you need to figure out a way to do it on your own. The first option, and often the most underused strategy, is to raise the deposit from the equity you’ve got in a property.
You might have owned a home for the last 10 to 15 years that has amassed tens of thousands in equity – or even hundreds of thousands. As long as the affordability stacks up from your own personal income, lenders are more than happy to release funds from that to put down on a new property as an investment.
The only other alternative is extra savings – you’d have to put money aside yourself. You will always need money available for deposit on a Buy to Let property.
What are the pros and cons of a gifted deposit for a Buy to Let mortgage?
The massive pro of a gifted deposit to buy property is that you haven’t got to save up the money yourself, which is amazing. That is a huge plus.
The only real disadvantage to a gifted deposit is that it can potentially reduce the lenders you have access to, but still ample lenders will do it. It might just rule one or two out.
Other than that, there is no real downside. Rather than having to save the money yourself, or even mortgage it from your family home, you could get a Buy to Let and potentially generate a rental income from it each month.
How can a mortgage broker help here? Have you got anything else to add?
When it comes down to looking at buying a property with a gifted deposit, some banks will just refuse the application. Working with a mortgage broker has dealt with this in the past puts you in a much better position.
It means that straight away, you’re not wasting any time or money. A broker will ensure you’re not submitting applications through to lenders that may not accept the gifted deposit from your family.
MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
Approved by The Openwork Partnership on 18/12/2024.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.