Buying a home is one of the biggest expenses in modern day life. Typically, it takes around 8 years to save for a reasonable deposit of 25%, which is why many of us are now turning to the bank of mum and dad to help. As of 2019, the London School of Economics suggested that families are the sixth biggest mortgage lender, with over six billion pounds given to offspring to help them step onto the property ladder.
In our own survey we carried out on family lending and attitudes towards it, we discovered that 11% of the 3000 people surveyed received help from a family member to purchase a property, so it’s more common than you might believe. However, it’s not as straightforward as simply handing over the money – there are certain requirements to mortgages with gifted deposits, including who can provide the funds to begin with.
A mortgage with a gifted deposit is where a family member – usually parents or grandparents – give money toward a house deposit, and the amount can either cover the full deposit or part of it. This can help the family member receiving the gift get access to better mortgage deals and lower monthly payments, making day–to–day life more affordable.
However, when gifting money for a house deposit, it needs to be just that – a gift. If the money is expected to be paid back then it’s counted as a loan and it’s likely that the lender will factor this into their affordability calculations. If you’re considering giving a family member a loan to purchase a property, take a look at our guide.
If you’re thinking about gifting money for a house deposit, we recommend seeking the help of a financial adviser to ensure you can afford the lump sum.
Who can give a gifted deposit will depend on the mortgage lender and their criteria. Generally, lenders will only allow a house deposit gift from parents, siblings and grandparents. Gifts from more distant family members such as aunts and uncles may not be permitted. In most cases, gifted deposits from friends won’t be permitted
A key requirement for gifting money for a house deposit is that you’ll need to include proof of the financial gift. This will be a written declaration stating that the money is a gift and is not expected to be paid back. Additionally, the mortgage deposit gift letter will need to state that it doesn’t grant the person gifting any rights to the property. Most mortgage advisers can provide a letter template for you. If not you can seek out the assistance of a solicitor instead, but be aware this may invoke an additional cost.
Most mortgage deposit gift letters will include the following details:
Alongside the mortgage deposit gift letter, it’s likely that the family member gifting the deposit will have to provide personal documents such as a photo ID, proof of address and their bank statements may also be requested. This is so the mortgage lender can comply with anti-money laundering regulations.
If you’re gifting money for a house deposit to a family member who co-purchasing a house with a partner or friend, you may wish to protect your gift with a declaration or deed of trust. This states who the money was gifted to so if they split up or disagreements are had, it’ll ensure that the money will remain the property of your family member. However, if they later get married, this may affect the deed of trust.
No, you don’t have to pay tax on gifted house deposits, providing the person gifting the money doesn’t die within seven years of giving the deposit. If they pass away prior to the seven years and their estate is worth over £325,000 including the deposit, you’ll be liable to pay inheritance tax.
That’s our guide to gifting money for a house deposit. Want to find out more about how to gift money? Read our article on how to give tax free, next.