Gifted deposit mortgage (A complete guide)

In this brief guide, we are going to discuss what a gifted mortgage deposit is and any considerations you should make when looking to get a gifted deposit mortgage.

With mortgage lender requirements rising due to house price rises there are now a lot of mortgage lenders who will accept gifted deposits in order for more borrowers to be able to afford the mortgage.

What is a gifted deposit?

A gifted deposit is a mortgage deposit which is gifted to you by family members or friends so you can afford your mortgage deposit. A gifted deposit can either be for the whole mortgage deposit required by the mortgage lender or only part of the mortgage deposit required by the mortgage lender.

When taking out a gifted deposit most mortgage lenders will insist on a gifted deposit letter.

Some mortgage lenders will also only allow gifted deposits from family and not friends.

You should be aware that a gifted deposit must not be a loan which you have to pay back at any time or any funds which you have to pay back at any time. 

If you have to pay the funds back at any time then it won’t be considered a gift and as such the mortgage lender will not accept it.

When accepting a gifted deposit is also very important that you can prove where the money has come from. 

If you are unable to show a clear paper trail leading to the money then the mortgage lender will likely reject the funds and you won’t be able to get a mortgage.

Mortgage lenders have an obligation to verify the source of funds so they can meet their anti-money laundering obligations.

If you are applying for a mortgage with a gifted deposit, it is therefore essential that you have collected all necessary information as to how the funds were generated and can evidence this to the mortgage lender.

Without a clear paper trail of your gifted deposit, your mortgage application could be declined or delayed.

What if you need to repay your mortgage deposit?

If you need to repat your mortgage deposit then a mortgage lender will not view this as a gifted deposit but instead, they will view it as a loan and count this towards your credit obligations.

This could mean that the mortgage lender will discount how much mortgage you could potentially afford based on the new loan you now have.

This could significantly decrease your mortgage affordability and cause the mortgage lender to decline you for the mortgage.

If the gifted deposit is required to be paid back then it could also indicate that the person gifting you the loan has a charge over the property.

Most mortgage lenders will not accept this but there may be a few mortgage lenders who are willing to accept a gifted deposit where the gift is really a loan.

How to get a gifted deposit mortgage?

To get a gifted deposit mortgage you should follow the tips below:

• Ensure yo get a gifted deposit letter from the mortgage lender which the person gifting you the deposit and you will need to sign. A gifted deposit letter will state that the money being given is strictly a gift and the person gifting the money does not expect it back or have any legal charge over the property.
• Ensure you have already gotten proof of where the gifted deposit originated from and can submit this proof to the mortgage lender
• Ensure the mortgage lender you are applying to accepts gifted deposits and read their guidance on gifted deposits. Not all mortgage lenders will accept gifted deposits and those who do will usually require that the gifted deposit is only provided from a friend or close family.

If the gifted deposit letter template is not provided by the mortgage lender then you will need to write one yourself.

If you write your own gifted deposit letter then it should contain the following information:

• The name of the person gifting you the money
• The relationship to you of the person giving you the money
• The amount being gifted and that the money is strictly a gift and is not being repaid
• The source of the gift
• A note clearly stating that the gift has no  bearing on the mortgage lenders charge over the property
• The address of the property being purchased
• A statement clearly saying that the gift does not constitute a financial agreement
• A statement that the friend or family member is financially stable and can gift you a mortgage deposit.
• The document must be signed and dated by both parties.

What documents do you need to provide with a gifted deposit?

With a gifted deposit you will need to provide the below documents:

• A gifted deposit letter
• The Identity of the person gifting the funds
• The proof of address of the person gifting the funds
• The identification documents of the person gifting the funds (e.g passport)
• Bank statements may be required from the person gifting the deposit

Providing these documents will help you pass the anti-money-laundering checks which the mortgage lender and your conveyancer will require.

Alternatives to a gifted deposit

To get a mortgage these are the government schemes which may enable you to get a mortgage. You can check if you are eligible for these government schemes by using a government scheme eligibility calculator.

• Lifetime ISA– gives you a government bonus of £1,000 if you save a maximum £4,000 a year.
• Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
• Help to buy equity loan– gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
• Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
• Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
• Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
• Right to buy– allows you to buy your home at a discount price.
• Preserved right to buy– same as above.
• Right to acquire– similar to the above.

Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.

Use a mortgage broker for your mortgage in principle

You may want to use an independent mortgage broker to help you get a mortgage on your new home.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.

This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. 

This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application. 

Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.

It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.

Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.

They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.

This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.

In this brief guide, we discussed what a gifted mortgage deposit is and any considerations you should make when looking to get a gifted deposit mortgage.

If you have any questions or comments please let us know.

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.