As property prices continue to rise, many individuals are increasingly relying on support from parents or grandparents to get onto the property ladder. If you’re planning to gift money for a house deposit, you may be surprised to learn it isn’t as easy as transferring some cash from your account to the lucky person receiving your generous financial gift.

Mortgage lenders need to check where a house deposit has come from in order to ensure they meet mortgage regulations. In this guide, we’ll explain what a gifted mortgage deposit is, how it works, and the necessary steps to prove and declare it.

What is a mortgage gifted deposit?

A mortgage gifted deposit is a sum of money given by someone, typically a family member, to a homebuyer to help them purchase a property. By using the term ‘gift’ it means it doesn’t need to be repaid, and the giver will have no financial stake in the property purchased.

For full transparency, mortgage lenders require a gifted deposit letter as proof the money is being gifted. As well as adhering to anti-money laundering laws, this helps lenders to accurately assess affordability. Lenders can then ensure the buyer is not taking on additional debt which could impact their financial outgoings and amount the lender is willing to lend.

How do gifted deposits work?

Gifted deposits are straightforward with the key requirement of providing proper documentation of the gift. The gift giver must provide a ‘gifted deposit letter’, which is a written gifted deposit declaration confirming the money is a gift and not a loan. This letter will need to be submitted to the mortgage lender as proof the money does not need to be repaid and the lender will verify the source of the funds to comply with anti-money laundering regulations.

Who can gift a deposit for a mortgage?

There are some restrictions on who can gift a deposit and most lenders prefer when your gifted deposit comes from a relative. In most instances, gifted deposits for a mortgage will be accepted if they come from close family members such as parents, grandparents, or siblings. People who usually can’t give a deposit are family friends, employers, landlord and non-blood relatives. It’s not a hard and fast rule, so it’s important to check the specific policies of the mortgage lender. The key requirement is that the donor has no interest in the property and does not expect repayment.

Do I need to prove my deposit is gifted?

Yes, you need to prove your deposit is gifted. This involves providing a gifted deposit letter which includes:

  • The donor’s details which need to include name, address and relationship to the recipient they’re gifting the money to, as well as Photo ID
  • The amount they are gifting as a deposit
  • A statement confirming the money is a gift with no repayment expected
  • Confirmation the donor has no financial stake in the property
  • Confirmation the gift giver can afford to give you the money.

To comply with anti-money laundering laws lenders will ask for photo ID and proof of address. Along with the gifted deposit letter, they may also need further clarity to evidence of the source of the funds, such as bank statements from the donor.

Are gifted deposits subject to inheritance tax?

Gifted deposits can be subject to inheritance tax if the gift giver dies within seven years of the money being gifted. The tax implications will depend on how big their estate is when they pass away, and the amount gifted. It’s always best to seek independent financial advice to understand potential tax liabilities when it comes to large sums of money. You can find an independent financial adviser at unbiased.co.uk.

More helpful mortgage advice

For further guidance on mortgages, including the process of applying for a mortgage and understanding mortgage repayments, visit our mortgage support page.

You can also find further information about inheritance tax and gifting money, visit our family gifting resource hub.

Mortgages with Hodge

At Hodge, we’re committed to protecting our customers from mortgage scams. Our team ensures all transactions are secure and our customers receive transparent, honest service. We verify all brokers and lenders we work with, providing you with peace of mind throughout your mortgage journey.

Learn more about our mortgage options and how we protect our customers.

We’re proud to be supporting Take Five to Stop Fraud. This national campaign offers straight-forward and impartial advice to help everyone protect themselves from preventable financial and mortgage fraud. Fraud poses a major threat to UK businesses and individuals, from mortgage fraud to other sophisticated ways to target and deceive. Together, we can tackle financial and mortgage fraud in three key steps: stop, challenge, protect.

If you’d like more information, visit the Hodge scams and fraud hub.

This article is correct at time of publishing and for general information purposes only. We recommend you speak to a professional financial adviser for advice. You can find a financial adviser and further personal finance information at unbiased.co.uk. 

Your home may be repossessed if you do not keep up repayments on your mortgage.