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March 31, 2022

Gift Deposit Mortgage Guide - Everything You Need To Know About Gifted Deposits

Gifted Deposits for Mortgages

Putting together the money for a deposit on a home is one of the biggest obstacles first-time buyers have when trying to get onto the property ladder. The stipulations for a mortgage mean that even a deposit as low as 5% on a property could mean having to find tens of thousands of pounds. Naturally, loved ones want to help their loved ones onto the property ladder and will provide some or all of the deposit to help them get a mortgage. This is commonly known as a gifted deposit, but how does this work and what do you need to know?

What Counts as a Gifted Deposit?

Because tax law means that you can't just accept money, a gifted deposit means that you've been given money towards or to fully cover the deposit on that amount. Family members can give as much or as little as they would like as long as it is not classed as a loan. A gifted deposit must be given freely without any expectation of repayments in the future. What counts as a gifted deposit is the finances given to somebody to help them purchase a property. The funds can be a contribution towards the down payment or the entire deposit, but the money needs to be classed as a gift rather than a loan.

How Much Can You Gift for a Mortgage?

How Much Can You Gift for a Mortgage

There is no limit on the amount of money somebody can give you for a mortgage down payment. If you are given money as a deposit from a family member like a parent or grandparent, this is classed as a “Potentially Exempt Transfer.” So if the gifted doesn't die within the next 7 years it's not counted for inheritance tax purposes but, most crucially, if the gifter dies within 7 years it can become what is known as a “chargeable transfer,” which means that inheritance tax could be applied. 


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Inheritance tax is payable on the part of an estate at a rate of 40% when it's worth over £325,000. But if you want to bypass the inheritance tax, the upper limit you can accept is a £3,000 tax-free gift allowance every year, known as your annual exemption. If you built this money up in a savings account over a number of years and used it for your deposit, you would not need to declare it as a gifted deposit and it would not be subject to inheritance tax.

Who Can Lend Money to a Family To Buy a House?

In theory, anybody can give you a deposit. But mortgage lenders prefer if the person giving the money is a relative. There are also some lenders that can have stricter requirements, for example, some will stipulate that only the parent gives you the money, but it will depend on the lender you approach. If you can find a mortgage lender that allows any family member to give you the money such as a parent, grandparent, or sibling, this can make the process of a gifted deposit easier.

Which Mortgage Lenders Accept Gifted Deposits?

Most mortgage lenders accept gifted deposits providing they are from immediate family e.g. siblings, parents or grandparents. Please bare in mind that each lender will have different rules on gifted deposits, with some placing their own criteria and restrictions.

Nationwide are the only 1 of the 10 largest mortgage lenders in the UK to have restrictions on gifted mortgage deposits from parents, family and friends. However, these restrictions only apply to mortgages that require lower deposits (5% and 10%).

If you would like to learn more about what lenders accept gifted deposits and their criteria, contact Bolt's mortgage advisors in Essex today!

What Is a Gifted Deposit Letter?

Gifted Deposit Letter

When you are using a gifted deposit, you have to prove that the money is a gift without any expectation of repayment. This is where a Gifted Deposit Letter is required, which would have the following information:

  • The gifter's name. 
  • The recipient’s name. 
  • The total sum of the gift. 
  • A statement showing that it is a gift.
  • A statement showing the gifter has no commercial interests. 
  • A confirmation that the gift has no commercial or financial stake in the property being purchased. 
  • A confirmation that the gifter is in a financial position to provide the gift. 

The person providing the gift will also need to provide a photo ID and two forms of address evidence, for example, bank statements or Council Tax letters.

Additionally, the person providing the gift has to prove they have the funds, this would include bank statements and evidence of the money source. If the gifter has been saving for many years, they will also need to provide evidence of regular deposits into the accounts. If it has been gifted as part of an inheritance lump sum, it's likely you will need to provide a copy of the will of the deceased. 

However, it's important to know if you are accepting a lump sum as part of a living inheritance from an older relative, you may have to pay inheritance tax on it. This would be if they passed away within 7 years of providing you with the gifted deposit. 

Additionally, the gift giver cannot be seen to be “depriving themselves of capital,” for example, if they qualified for certain state benefits as a result of gifting this money.

When Is Proof of Deposit Required?

Proof of deposit verifies the requisite funds for the down payment have been deposited into an account and where they have come from. The proof of deposit is required any time a large sum of money is gifted for the purpose of a down payment and is in excess of £3,000.

What Are the Rules of Gifting Money From Parents?

Being in receipt of money from parents will depend on a number of components. Because the government wants to discourage individuals from giving away all of their money before they die, this is why inheritance tax is paid on the estate, which is paid at 40%. The basic ground rules of giving money to family members are: 

  • The total gift is less than the annual allowance of £3,000. 
  • The gift is given to either spouse, civil partner, or registered charity. 
  • The gift is given at least 7 years before the gifter passes away.

Contact BOLT Mortgages for More Information on Gifted Deposits!

The whole process of applying for a mortgage can be very daunting. In this modern financial world with the cost of living increasing and people trying to get onto the property ladder, everyone would benefit from extra financial support. 

This is a very big process to undergo, which is why it's so important to know the finite details before you can go into the house buying process knowing exactly what you can do with your gifted deposit. 

As expert mortgage brokers in Essex, we can provide a comprehensive service for you to ensure that you know exactly what you are dealing with when it comes to gifted deposits. We are more than happy to help you with any questions relating to gifted deposits and what the rules are. Our team is here for you, so do not hesitate to get in contact with us.

FAQs

Can you get a loan for a mortgage deposit?

Potentially, you can. Many mortgage lenders are concerned when it comes to mortgage deposits coming from personal loans and are very mindful of how you repay a mortgage, as well as any debt. There are things that you can do to bolster your case. Lenders look at your debt to income ratio and your earnings alongside the amount that you owe, so if there is evidence to suggest you can afford both, some lenders may consider the application. Additionally, lenders look more favourably on those who can put down a higher deposit. 20% or more is the figure most lenders prefer. A large deposit gives you access to better rates.

Do you get your mortgage deposit back?

When you pay your deposit, you are legally required to go ahead with the property purchase. If you decide to back out after this point, you will lose your deposit. However, if there are issues relating to the selling of the property and the seller pulls out, you will get the exchange deposit back. For those who are selling a property, if the buyer pulls out you can keep the exchange deposit.

Does a mortgage offer include a deposit?

A deposit is the lump sum that you pay upfront, which means that you own part of the property outright and is the way to give the seller reassurance that you are serious about purchasing the property. The mortgage is the rest of the agreed sale price, which you repay in instalments and is classed as a loan.

How do you work out your mortgage deposit?

The amount of deposit that you need for a mortgage is worked out as a percentage of the value of the property you are buying. The mortgage is then based on what is left, which is the amount that you are borrowing from the lender. Calculating the total deposit will depend on the mortgage. For example, the largest mortgage you can get is a 95% mortgage, meaning that you would need a deposit of 5% of the cost of the property. The quick way to work out the mortgage deposit would be to get the house price and multiply it by 0.05. So if you wanted to get a property of the value of £250,000, the minimum deposit would be £12,500. This is because £250,000 x 0.05 = £12,500.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen

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YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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