Gifted Deposits for Mortgages Explained

Saving a mortgage deposit to pay upfront is the most significant obstacle most people face when buying their first home. For many first-time buyers, a gifted deposit can mean owning a home much sooner than would have otherwise been possible with their own savings.

But how does a gifted deposit work, and how can it help you get on the housing ladder? If you’re fortunate enough to have a donor willing to gift a deposit, this article covers what you need to know, from who can give a gifted house deposit to the crucial steps for using one. We’ll also weigh the pros and cons so you can make an informed decision about your property purchase.

What Is a Gifted Deposit?

A gifted deposit means you are given a sum of money by a donor, often a family member, to put towards the deposit amount for your own home. The key characteristic of a gifted deposit is that it’s a gift, not a loan. That means the donor does not expect repayment or a stake in the property.

Gifted deposits can help buyers get a better mortgage deal by reducing the loan-to-value (LTV) ratio, making them a viable option for many first-time buyers.

Who Can Give a Gifted Deposit?

Who the gift giver is matters, and there are limits on who can gift a deposit. Most mortgage lenders prefer gifted deposits to come from close relatives, as these are seen as more reliable and straightforward sources. Here are some common examples of acceptable donors:

• Parents (including stepparents or parents-in-law).
• Siblings (including step-siblings, half siblings, or brothers or sisters-in-law).
• Grandparents or step-grandparents.
• Aunts, uncles, or nieces and nephews (blood relatives).
• Applicant’s Children (biological, adopted children, or step-children).
• Current partners living with the applicant.

Mortgage lenders are more comfortable if the person giving the gifted deposits is a family member due to the long-term financial stability and closeness of these relationships.

Who Cannot Give a Gifted Deposit?

While most lenders accept mortgage deposits from immediate family, deposits from distant relatives or other third parties are often not allowed. This might include:

• Family friends.
• Developers or landlords incentivising to buy.
• Non-blood-related aunts, uncles, or cousins.
• Foster or guardian children.

If the person giving the deposit comes from outside a lender’s approved list, there is a higher chance it could be classified as high-risk, which may complicate mortgage approval.

Steps for Buying a Home with a Gifted Deposit

Using a gifted deposit isn’t as simple as receiving the money and telling your lender; it’s a regulated process. Here are the steps you need to follow to make it smooth.

1. Gifted Deposit Letter

First, you need a gifted deposit letter also called a gifted deposit declaration, to include with your mortgage application, which proves to your lender that the deposit is a gift, not a loan. This signed letter ensures the donor has no financial stake or claim over the property.

The gifted deposit letter should include:

• Full name of the recipient (you).
• Amount of the deposit being gifted.
• Relationship between the donor and recipient.
• Statement confirming no expectations of repayment or shared ownership in the property.

Many financial institutions have templates for the gifted deposit declaration, but in some cases, you may need a solicitor to prepare a certified letter.

2. Get a Photo ID and Proof of Address from the Donor

The person gifting will need to provide proof of identity and address for anti-money laundering purposes. Examples commonly required include a passport, driving licence or a recent utility bill.

3. Provide Proof of Funds

Finally, your lender will want to know where the gifted money is coming from. This is for anti-money laundering checks. The gift giver must provide bank statements showing the origin of the funds.

Pros and Cons of a Gifted Deposit

Gifted deposits can be a lifeline for first-time buyers and home movers, but they’re not without their challenges. Below we weigh up the pros and cons so you can decide if this is for you.

Pros of Using a Gifted Deposit

• Own a Home Sooner – Saving for a deposit can take years, but a gifted deposit can help you buy your first home much sooner.
• Lower Mortgage Costs – A bigger house deposit can reduce your loan-to-value (LTV) ratio, which often unlocks better mortgage rates. You can also accept multiple gifts to increase your total deposit
• No Legal Financial Ties – Once the deposit is officially gifted, there’s no financial obligation to repay the donor or give them a legal interest in the property.
• Potential Tax Relief – Gifted deposits may be tax-free depending on the specific regulations such as inheritance tax if the donor dies within seven years.

Cons of Using a Gifted Deposit

• Relationship Challenges – If you receive a large amount of money from family or friends it could complicate relationships especially if disputes arise down the line.
• Inheritance Tax Risk – A gifted deposit may have tax implications. If the donor passes within seven years of giving the deposit, or in the case of a bigger deposit, you may need to pay inheritance tax.
• Paperwork Overwhelm – The process of providing proof of funds and writing a gifted deposit letter can be a daunting prospect if you’re not familiar with the legalities.

Gifting money for a deposit is a generous act, but it’s important to complete all the legal and financial steps to make the process stress-free for both parties.

Get Gifted Deposit Advice from Eden Hawk Financial Solutions

The gifted deposit process can be complex, especially for first-time buyers. From understanding lender requirements and tax implications for larger gifted deposits to preparing the right documentation, guidance from an experienced mortgage broker can make all the difference.

At Eden Hawk Financial Solutions, our team of mortgage experts will simplify the process. We’ll provide personalised mortgage advice and step-by-step support to simplify your experience.

Don’t leave your mortgage to chance, book a free consultation with one of our specialists today and start your journey to your dream home.

Final Thoughts

A gifted deposit can be a lifesaver for first-time buyers looking to get on the property ladder. Gifted deposits reduce the financial burden of a deposit and improve your chance of a better mortgage rate, making them a practical solution for those lucky enough to have a donor.

Making sure you meet mortgage lender requirements and have the right documentation in place is key to avoiding delays or complications. With the right knowledge and support, a gifted deposit can help get you into your dream home.

For expert advice, contact Eden Hawk Financial Solutions today. Whether you’re researching your mortgage options or need help with the paperwork, we’re here to help every step of the way.