How does a Gifted Deposit Affect a Mortgage?

If you’re looking to buy a new home, it’s likely that you’ll need to put down a deposit. These days, the minimum deposit is usually equivalent to 5% of the value of the property. A 5% deposit will mean you have a 95% LTV (Loan to Value) ratio.

With house prices in the UK currently at a staggering 8 x average earnings, just getting on the housing ladder can be very difficult. This is where a gifted deposit might help.

A gifted deposit is a sum of money given to you by someone else, usually a member of your family, so that you can put down enough of a deposit to buy a home. Importantly, the money you are gifted must be given by way of a gift and not a loan.

Many mortgage lenders will accept a gifted deposit as all or part of the proof of deposit and borrower provides when requesting a mortgage. However, in order for the deposit to be accepted, the lender will normally require that the following questions are addressed;

1. What is the relationship between the mortgage applicant and the gifter
2. What is the amount of money they wish to gift;
3. Confirmation that the gift is non-refundable;
4. That the gifter will hold no legal charge over the property

It’s not unusual for the gifter to be requested to provide a statement of account for where the money has originated. This is usual, for protection against money laundering. Also, should the gifter die within 7 years of giving the money, and the estate is in excess of the current Inheritance Tax (IHT) allowances at the time, there may be some IHT to pay on the gift, usually on a sliding scale.

For more information, book a free appointment with one of our mortgage advisers now.