Using a gifted deposit for a mortgage

Saving a mortgage deposit can take years. House prices may rise faster than your savings. A gifted deposit allows someone else to contribute towards the amount you need upfront.

Most gifts come from a parent or another family member. However, lenders apply different rules about who can provide the money and how you must prove its source.

Declaring the gift early can prevent delays during your mortgage application. Your lender and conveyancer will need evidence that the money is genuine and does not need repaying.

What to arrange before applying

What is a gifted deposit?

A gifted deposit is money someone gives you towards the deposit on a home. A gifted house deposit may cover some of the amount you need or provide the full deposit.

Parents and other family members often provide the money. Some lenders also accept gifts from partners, friends or other people.

A gifted deposit mortgage is not a separate type of mortgage. The term simply describes an application that includes gifted money within the deposit.

The gift giver or donor must usually provide the money without expecting repayment. They must also confirm that the gift gives them no legal interest in the property.

How does a gifted deposit work?

Start by telling your mortgage broker or lender how much of your deposit will come from a gift. They will check whether the donor and source of funds meet their gifted deposit rules.

The gift giver, also known as the donor, will usually need to sign a gifted deposit declaration. The document confirms the amount given and your relationship with the donor. It must also confirm that they expect no repayment and will not own any part of the home.

Your conveyancer will then carry out identity and anti-money laundering checks. Once the lender accepts the gift, the mortgage application can continue in the usual way.

Who can provide a gifted deposit?

Most lenders accept a gifted deposit from parents, although their rules vary. Many also accept gifts from grandparents, siblings, children or a spouse.

Some gifted deposit mortgage lenders consider money from friends, extended family or other third parties. However, you may have fewer options when the donor is not a close relative.

Tell your broker who will provide the money before applying. They can identify which mortgage lenders accept gifted deposits from someone with that relationship to you.

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What goes in a gifted deposit letter?

Your lender may ask the donor to complete its own form or provide a signed gifted deposit letter.

Requirements vary, but the letter will usually include:

• The donor’s name and address
• Your relationship with the donor
• The amount they are giving you
• The source of funds
• Confirmation of no expectation of repayment
• Confirmation that the donor will have no legal interest in the property

The donor may also need to provide identification, proof of address and bank statements. Your conveyancer will use the evidence to check the source of funds. They may also carry out anti-money laundering checks.

What problems can arise with a gifted deposit?

Common problems with gifted deposit applications include late declarations and missing proof of funds. Either issue can delay the mortgage process.

A repayable contribution counts as a loan rather than a genuine gift. The lender may consider the repayments when checking how much you can afford to borrow.

Difficulties may also arise if the donor expects to own part of the property. Discuss any ownership plans with your broker and conveyancer before applying.

Finally, transferring large sums between accounts can make the source harder to trace. Keep clear records and ask the donor to retain relevant bank statements.

Is a gifted deposit taxable?

You do not usually pay tax when you receive a cash gift. However, inheritance tax may apply if the donor dies within seven years.

The outcome depends on the value of the donor’s estate, previous gifts and any available exemptions. The donor should keep a record of the amount and date of the gift.

Tax rules can be complex, so seek advice from a tax adviser or solicitor when necessary. You can also review the current Inheritance Tax rules for gifts on GOV.UK.

Applying with a gifted deposit

Start by telling your broker about the gift before requesting an Agreement in Principle. Provide the donor’s name, your relationship and the amount they plan to contribute.

The lender will assess your income, spending, credit history and remaining deposit in the usual way. A larger deposit could reduce your loan-to-value and give you access to more mortgage options.

Once you find a property, declare the gift on your full mortgage application. Your lender and conveyancer will then request the documents needed to approve the funds.

The same process applies whether you are a first-time buyer or already own a home.

A larger deposit could reduce your loan-to-value and give you access to more mortgage options.

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How Muttuo Mortgages can help

Gifted deposit rules vary between lenders. The donor’s relationship to you, the source of funds and any repayment agreement can all affect your options.

Muttuo is a whole-of-market mortgage broker with access to over 100 lenders. We can identify suitable gifted deposit mortgage lenders and explain what evidence they require.

Muttuo Mortgages can help you:

Your lender may repossess your home if you do not keep up with your mortgage repayments.