It’s hard to get on the property ladder, and sometimes it’s just as hard to move up it. For many people, the biggest problem they face when buying a new home is the deposit for the mortgage. So, what happens if someone gifts you all or some of that money?
When is a deposit ‘gifted’, and what does that mean?
When you break it right down, all mortgage lenders will want you to show that you can afford the deposit on your new home and that you have the income to maintain the payments on your loan above all else. For many buyers, the deposit is the biggest issue in this process. Even a modest house will usually be edging towards £200,000, which usually means a deposit of £10,000 or more. Saving up an amount like that can take a long time so, in some circumstances, a close family member, usually a parent, will gift the money for the deposit.
Is the promise of a gift enough?
No, sorry, the lender will want to see proof that this is actually a genuine gift, and the money is available.
So that means the person giving you the money must:
- Have no legal rights over the property because of the gift
- Not be loaning you the money in any way. If it is considered a loan, you may be refused the mortgage, and it will almost certainly be counted in your outgoings
- Have no expectation of repayment
Is that all you need?
Yes and no. Mortgage lenders will usually take a gifted deposit as proof that you have the money to put down on the house. Seems simple enough, right? Well, yes, it is, but there are some things you need to remember.
- Your relationship with the person gifting can make a difference.
Usually, the lender will accept close family but may not be so keen to lend in other circumstances. Parents and grandparents are common sources of a gifted deposit, and siblings may also be acceptable. When it comes to more distant relatives and friends, the lenders may well be a lot more wary.
- It doesn’t need to be the full amount of the deposit.
Sometimes people make the mistake of thinking the deposit can only come from one source. This is absolutely not true, and a gifted deposit can be part or all of the money you need. However, all the rules will still usually apply regardless of the percentage of the deposit being gifted.
- If you are buying your benefactor’s house.
This complication does come up occasionally when parents are looking to downsize or still live with the children in the same house. Most lenders will see it as more of a reduction in the sale price rather than a gift. It may still be possible to get a mortgage, but we will need to look at the best options.
- You will need to prove it is a gift.
This basically means the person gifting the money will need to put it all in writing. For some lenders, this will be a form that needs to be completed. In some cases, though you may need to budget for a solicitor to draw up a legally binding letter to satisfy the mortgage company. Either way, it will need to confirm in a legally binding way:
- The amount of money to be gifted
- Who is gifting and receiving the money
- That the gift is not a loan and the person gifting the money is financially solvent
- Usually, it is here that they will state they have no claim to the property because of the gift
- The letter or form will also need to show the source of the money, usually, this will be savings, but it potentially could be other sources.
Assuming all this is available, you should be able to go ahead.
Are there any potential issues or difficulties?
Sometimes there can be a few sticking points for some lenders. These usually revolve around clarity about the interest in the house. Some potential sticking points could be seemingly small things, like if the person gifting the money intends to also live in the house. This is not an uncommon scenario with elderly parents or grandparents. We will need to look at this carefully if that is going to be the case.
You should also consider if the gift will be subject to inheritance tax if the person gifting the money passes away and has an estate of more than £325,000.
As with any mortgage-related decision, you need to know exactly where you (and in this case, the person gifting the money) stand before you go ahead. That said, a gifted deposit has helped many people into their ideal home.
Call us if you are getting help from someone with part, or all, of your deposit, and we can work to get you the best deal.