Gifted Deposit Mortgage

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Gifted Deposit Mortgage

Carolyn explains how a gifted deposit works.

What is a gifted deposit and how does it work?

In essence, a gifted deposit is where somebody, usually a family member, gives you the funds to use as a deposit to buy a property. Usually it’s given without any expectation of repayment. Certainly there’s no legal requirement for repayment.

The funds are gifted to the person who’s buying the property, and they use that along with their mortgage to make the purchase.

Can I use a gifted deposit as a First Time Buyer in Scotland?


What is the mortgage criteria for a gifted deposit in Scotland? Do all mortgage lenders accept gifted deposits?

In general, yes, they do accept them. Some will have criteria around your relationship with the person gifting the money. The more directly they are related to you, the happier lenders tend to be – a parent is ideal.

Some lenders are happy with more extended family relationships. If somebody has been a dear aunt to you – but is an honorary aunt rather than a real blood aunt – not all lenders will accept that. So it’s important to check if the lender will be happy with your particular scenario. But generally speaking, most are quite comfortable with it.

Do I need a gifted deposit letter? If so, what needs to be included in it?

If we’re helping you with your application, we’ve got a template that you could complete. Some lenders will have their own template that they’ll insist upon.

The gist of it is that the person gifting the deposit confirms three things: that they’re making the gift for the purchase of a particular address; the funds are not required to be repaid, and they won’t have any legal interest in the property.

Basically, the lender wants this money to be given freely and without obligation. The gifter is just signing to confirm that.

Can I only receive gifted deposits from family members?

Some lenders will be particular and say that it must be specific family relationships. Others are a little bit more relaxed, but they will want to understand your relationship with the person gifting you the money.

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Is there a limit on how much can be gifted?

That’s not generally been an issue. Usually, parents want to gift as little as possible, so it’s rare that we’re using very substantial gifts.

Generally speaking, lenders are quite relaxed. They just want to understand where the money is coming from and why it’s being gifted. That story just needs to make sense.

Do you have to pay tax on a gifted deposit?

Probably not. This tends to be more around inheritance tax – and that’s obviously not our sphere. Usually people are making a gifted deposit when they’re generally quite young and inheritance tax limits don’t apply for a lot of people. So generally it’s not an issue.

There’s also an amount of money that you could gift without any tax implications at all. You could seek clarification on this, because it changes regularly. If you’re concerned by that, it’s worth checking with either your solicitor or an accountant.

What will happen if a gifted deposit is not declared?

If we’re submitting a mortgage application, we need to state where the funds are coming from, fully, at the point of application. If there’s any attempt to conceal that, or we haven’t made it clear that it’s a gifted deposit, ultimately, you might not get through the mortgage application.

Your solicitor also has to demonstrate where the funds are from and take receipt of the money as the deposit. It could certainly cause delays if you’ve not properly declared that it’s a gift, as this needs to be properly accounted for. Lots of paperwork needs to be in place to make it work.

How do solicitors check the source of funds?

With gifted deposits, some of it will depend on how much money is being gifted. The bigger the amount, the more checks there are. They’ll usually want to see ID for the person gifting the deposit and usually three to six months bank statements showing that money in their bank account.

There will be a form of sense check to this. If your parents have been earning modest incomes all their lives and they’re suddenly gifting you £2 million, it would raise an eyebrow.

Solicitors will check whether it’s realistic that they’ve saved that money by saving from their income. Or have they inherited the money? Has it come from the sale of a property? They’ll want to understand that it all makes sense, basically.

How many bank statements do I need for a gifted deposit?

I would say it’s easier if you’ve got six months to hand. Sometimes you’ll only be asked for three, but it could easily be six. If it is an unusual sum of money for the circumstance, if there’s perhaps been an inheritance for example, they might ask for bank statements from longer ago to prove the original source of funds.

They might also need paperwork around the inheritance or a property sale. So be prepared to be asked for more, particularly if it’s a large amount.

What is the seven-year rule for gifted deposits?

This is inheritance tax-related and you should always get proper tax advice from an accountant.

Theoretically, if somebody gifts money to someone else and they die within seven years, that gift could be considered as part of their estate. If their estate is liable for inheritance tax, inheritance tax may be due on the gift.

So if you are likely to have an inheritance tax burden, you should be seeking appropriate advice ahead of doing this.

If you are way under the inheritance tax threshold, it’s unlikely to matter. It’s always something to double check with a solicitor – or you could speak directly to a financial advisor and get personal advice.

What is the alternative to a gifted deposit?

Really, the only alternative is to save the money yourself, which is a very boring and laborious thing to do!

There are a couple of options in terms of sort of shared ownership schemes that might help boost your deposit funds. But realistically you either need a generous gift or to do the hard work of saving, unfortunately.

What are the pros and cons of a gifted deposit?

If you could get gifted cash from your parents or a beloved old auntie, that’s a great idea. There’s no real downside to the person receiving the money.

The con is, of course, that somebody’s got to give up their hard-earned cash for no return. You might have an informal agreement that there’ll be some payback at some point, but there’s no legal entitlement to that. They are giving away money for nothing.

But if they are happy with that, it’s a win-win. It may be a little bit challenging if there are siblings and only one of them needs a gifted deposit. Fairness within the family relationships is obviously a personal matter to resolve, but financially and mortgage-wise, gifted deposits are absolutely great.

How can a mortgage broker help?

If you have any concerns, this is an area where if we don’t know the answer ourselves, we could point you in the right direction. We could certainly speak to you personally about what you’re trying to achieve and flag up anything of concern.