What is a gifted deposit letter?
A gifted deposit letter is a letter which is provided by someone gifting a deposit. It shows the terms of the gift if any. Some mortgage lenders may have a template or form which you and the donor will need to fill.
The gifted deposit letter will also include the amount you are being gifted and the relationship between the person giving the gift and you.
The person giving the gift should get legal advice to understand what they are getting into.
A gifted deposit letter will contain the details of the person gifting the money, why they are giving you the money, that they will not be asking for the money back and confirmation that they will not have any legal interests in the property.
A gifted deposit may be required if you don’t have enough savings for a mortgage. Your parents, family or friends could gift you a deposit to meet the minimum mortgage deposit most mortgage lenders accept of 5%.
An increased gifted deposit could be great if you are trying to reduce your loan to value (LTV) and thereby be possibly eligible for a cheaper mortgage.
Do you need a gifted deposit?
You may not need a gifted deposit as there are a few mortgage products from lenders which offer up to 100% Loan to value (LTV) for those who can’t save a 5% mortgage deposit. This includes the Barclays family springboard mortgage and the Lloyds lend hand mortgage.
There is also the governments help to buy shared ownership which allows you to buy a share of a property(minimum 25% and initial maximum 75%) and pay rent on the rest. You can then buy the complete property in steps with a help to buy staircasing mortgage.
How does a gifted deposit work?
A gifted deposit works by allowing you to increase your mortgage affordability.
Not all mortgage lenders will accept gifted deposits, in fact, they generally like the idea due to how easy money could be laundered through a mortgage.
Most mortgage lenders will only accept gifted deposit from parents whilst some will accept from parents, grandparents and siblings.
Few mortgage lenders will accept a gifted deposit from a friend.
Your mortgage broker should inform you of the terms of the mortgage lender and find you one that suits your needs.
When a gifted deposit is given your mortgage lender, broker and solicitor will request to see proof of where the money came from in the form of bank statements, as well as identification from the person who gave the money and in some cases a signed letter stating where the money came from and why it was gifted.
Your solicitor will be especially interested in where the money came from e.g was it the sale of investments or liquidation of assets.
This will be very important to your solicitor as if the person giving the gift becomes bankrupt within 7 years then this gift could be taken back to repay their liabilities.
What source of funds proof will you need for your gifted mortgage deposit letter?
Depending on how or where the funds were gotten from you may need a particular type of proof from the person giving you the gift to show to the solicitor, mortgage broker and mortgage lender.
- If the gift is an Inheritance then the person gifting you the money will need a letter from a Solicitor confirming the amount sent to you from the probate estate.
- If the money is from an ISA or premium bond account then a bond certificate will do.
- If the money is from retirement or their redundancy then the person gifting you the money will need a letter from their employer confirming the monies are in relation to either early retirement or redundancy.
- If the money is from a sale of a property or a remortgage then the person gifting you the money will need a letter from their solicitor confirming the same. They may also include a completion statement.
For all of the above, you will also need to provide a copy of the Identification of the person gifting you the money as well as their bank statement showing the receipt of the funds and confirming that the bank account is in the name of the person/s gifting you the money.
Will you pay tax on a gifted deposit?
You may have to pay tax on a gifted deposit if the person making the gift dies within 7 years. This may not be the case if the gifted deposit is a loan.
What if the gifted deposit is a loan?
If the gifted deposit is a loan rather than being outright a gift then you could have some issues with your mortgage affordability as most mortgage lenders may now see you are being less a mortgage-worthy than before.
This is because at some point in time you will have to make those mortgage repayments and someone else will likely have a charge on your home which means they may be able to repossess your home if you default on your gifted loan deposit.
Most mortgage lenders who may accept a gifted deposit which is a loan may require that you have a strict loan agreement with the person giving the gift stating the interest if any, the repayment terms, what will happen if it is repaid, what will happen if it isn’t repaid etc. You should both seek legal advice when getting into such an agreement.
You will then need to declare this gifted deposit loan to your mortgage lender once ready.
When do you need a gifted deposit letter?
You may need a gifted deposit letter if your mortgage deposit is being gifted to you. Your mortgage broker will advise you what your gifted deposit letter should contain as most banks may require the gifted deposit letter to contain certain things.
In fact, most banks will have and may provide you with a sample of a gifted deposit letter so you can present this to them. If your mortgage deposit is being gifted and you don’t provide a gifted deposit letter you could find your mortgage may be delayed until you do.
Do you have to declare a gifted deposit?
Yes, you will have to declare a gifted deposit and your solicitor will seek to get the proof of funds from you as to where the money came from. This means at some point or the other you will have to prove where the money came from if not red flags will begin to rise.
Your mortgage lender will also be required to know where the funds have come from in order to satisfy its anti-money laundering checks.
Can my parents give me money for a deposit?
Yes, your parents can give you money for a deposit and mortgage lenders, although not fans of gifted deposits prefer it comes from the parents. You may also be able to get a guarantor or offset mortgage with the help of your parents rather than needing a gifted deposit for your mortgage.
You could also possibly be eligible for the help to buy equity loan and the shared ownership mortgage which require just 5% down as a mortgage deposit.
Do Solicitors require proof of deposit?
Yes, as part of your solicitor’s job they will be required to verify where the money has come from and see what implications that may have for you now and in the future. This is because although money has been gifted you could still be liable to the person gifting you the money beyond the scope of any gifted deposit loan agreement or gifted deposit letter.
Sample of a gifted deposit letter:
(Full names of Givers)
(Address of Givers)
To: (Name of the lender)
Re: Purchase of (address of the property being purchased).
(I/We) confirm that (I/we) (am/are) gifting (full names of purchaser/s) of (address of purchaser/s), (my/our) (relationship to giver/s), £(amount being gifted) from (source of funds) towards the deposit for the purchase of the above property.
(I/We) confirm that the deposit is an unconditional and non-repayable gift, that (I/we) will have no interests or rights in the property whatsoever. (I/We) also, confirm that (I/we) will not reside in the property.
(I/We) confirm the availability of the deposit monies and understand that (I/we) may be asked for proof.
(I/We) agree that any personal documentation provided to support this application will be held on a mortgage file with all other information relating to this mortgage application. If the mortgage applicant(s) request(s) a copy of their mortgage file now or at any point in the future, the personal information that (I/we) have provided will be included in the information that is provided to the mortgage applicant(s).
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.