How do gifted house deposits work when applying for a mortgage?

If you’re in the process of buying your first home and have been fortunate to receive a gifted deposit, it’s important that you understand how these work when making your mortgage application. Whether the gifted deposit will cover all, or part of your total mortgage deposit, both lenders and solicitors require you to declare this and there’s a stringent process in the UK for doing so.

Whether you’re buying a new build home or an existing property, our guide to gifted deposits for first-time buyers includes everything you need to know, including frequently asked questions, and a useful gifted deposit letter template to help make your mortgage application easier.

What is a gifted house deposit?

A gifted house deposit is a gift of money that you have received, or will be given towards your mortgage deposit, to help you get onto the property ladder.

It could form part of the total deposit, adding to anything you’ve already saved towards buying your first home, or it may cover the entire deposit you need for a mortgage on the home you want to buy.

How does a gifted deposit for a mortgage work?

A gifted deposit could come from your family members or friends, and there must be nothing given in return for their contribution, or any expectation that the deposit is going to be repaid.

Even if the gifted deposit is coming from your own parents, they can’t simply place the money into your bank account for you to add to your house deposit savings. Any financial gifts that you use towards your mortgage deposit must be declared so that your lender can carry out their necessary anti-money laundering checks.

Who can gift a deposit?

Your parents can gift you money for a house deposit, although technically speaking, anybody can do so – provided that you are able to prove the source of the gift to your mortgage lender.

While different mortgage lenders may have different criteria, gifted house deposits from parents and grandparents are generally preferred as it’s more straightforward for lenders to carry out their anti-money laundering checks regarding an applicant’s immediate relatives. More distant family members or friends may be subject to more comprehensive checks, which could slow down the process of buying your home.

Requirements for a gifted deposit

As mentioned above, a key requirement for a gifted deposit is that it is a gift, with no expectation of repayment (as with a loan) or the donor receiving a stake in the property, nor anything else in return. Your conveyancing solicitor and mortgage lender will also need to be informed that you intend to use a gifted deposit to purchase your new home.

So that the mortgage lender can carry out their anti-money laundering checks promptly, you’ll need to provide the following:

• A gifted deposit letter – see the below section for what this must include.
• Proof of ID – Your solicitor will tell you what is specifically required by your mortgage lender, but this will typically be a copy of the donor’s passport or driving licence, plus two separate forms of address identification, such as a bank statement and utility bill.
• Proof of funds – Again, your solicitor will advise you on what exactly is needed, but they will need to check where the money has come from – for example, from the sale of a house, or from a pension. You may also need to provide your bank statement showing your receipt of the gifted deposit.

Advantages of using a gifted deposit

With so many first-time buyers finding it difficult to save the amounts needed for a mortgage deposit to get them onto the property ladder, using a gifted deposit has great advantages.

Typically, there’s no maximum amount you can use as a gifted deposit, so it’s an ideal way to boost your deposit to the amount you need for your perfect new home. And the bigger your deposit, the greater choice of mortgages you could have access to, as well as better rates that could make your new home even more affordable.

Gifted deposits are also generally tax-free, although in the below section we’ll outline possible exceptions to this.

Risks and considerations

Depending on the amount gifted, and the donor’s circumstances, Inheritance Tax may be payable on a gifted deposit. This may also be the case if the donor passes away within seven years of giving you the money.

If you’re buying your home with a partner or a friend, the gifted deposit donor may wish to protect their gift with a deed of trust. This would mean that in the case that you split up or part ways, you keep ownership of the money you were gifted.

Your solicitor will be able to discuss all of this with you in detail and answer any questions you might have.

How to write a gifted deposit letter for a mortgage

Most major mortgage lenders will have a standard gifted deposit declaration form that you need to fill out, whereas others may ask you to provide a letter with all of the information they require to carry out their checks.

If you are required to provide a letter, you should include the following details:

• The name of the donor(s), and your name as the person receiving the gifted deposit
• The relationship between you and the donor(s)
• The amount of money being gifted, and its purpose
• Confirmation that the money is not expected to be repaid
• Confirmation that the donor(s) will have no claim to the property

How gifted deposits can impact on your mortgage application

Gifted deposits are fairly common, and so they’re allowed by the majority of mortgage lenders – but not all of them, so make sure you’re upfront with your conveyancing solicitor and in your mortgage application so that you don’t have any hiccups in your home-buying journey.

Using a gifted deposit can make a positive impact on your mortgage application because you’ll have a larger deposit to put down; the less you need to borrow, the more attractive you’ll be to mortgage lenders. In turn this can open up the mortgage market even further for you, with better product options and interest rates to choose from, meaning lower monthly repayments once you’re in your new home.

On the other hand, gifted deposits could make your mortgage application process slower, or more complicated as lenders will need to perform anti-money laundering checks on the money, and you may need to provide more documentation in addition to the standard gifted deposit declaration letter or form. If you fail to declare your gifted deposit, your mortgage application could be significantly delayed, or your mortgage offer could be withdrawn altogether.

Alternatives to gifted deposits

If your family or friends would like to provide you with financial support to buy your first home, but can’t gift you money towards your deposit, there are still several ways that they can help. Here are some gifted deposit alternatives to consider.

• Family springboard mortgages: You can use a relative or friend’s savings to help you buy a home with a family springboard mortgage. They put their money into a special savings account, to which your mortgage is linked, and the account is then ‘locked’ for a set number of years. After these years have elapsed, all of the money will be returned to its owner with interest, provided that you’ve made all of your mortgage repayments.
• Guarantor mortgages: Similar to having a guarantor as a renter, with a guarantor mortgage a family member or friend agrees to make your mortgage repayments for you in the case that you fall behind.
• Joint mortgages: You could take out a joint mortgage on your new home with one (or several) other people, such as a relative or friend, and you’d each be equally liable for the repayments – even if only one of you intends to live in the property and take on the monthly repayment commitments. An important consideration however is that if any of the applicants already own a property, the joint purchase would be classed as a second home and so would be subject to an additional stamp duty rate of at least 3% of the purchase price, which might make it significantly less affordable.

All of the above types of mortgages can be discussed with an independent mortgage advisor to help you understand their pros and cons, and decide whether they might be right for you as a gifted house deposit alternative.

House buying schemes and incentives to make your new build home more affordable

Whatever your circumstances, learn about the affordable buying schemes and incentives that are available to help you buy a new Bellway home – with or without a gifted deposit, and whether you’re a first-time buyer, or moving on. Your Bellway sales advisor at your preferred development will be able to provide you with further information on what is available to you.

You can also choose to work with an independent mortgage advisor when buying your new Bellway home, to help you navigate the mortgage market and application process with personal financial advice from a qualified professional.

For more support throughout your first home journey, take a look at our must-read tips on saving money for a house deposit, and our guide to understanding some of the most confusing house-buying terminology.