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What is a Gifted Mortgage Deposit?

Written by Reviewed by Graham Norwood

19th Feb 2020 (Last updated on 2nd Jul 2020) 5 minute read

A gifted mortgage deposit is a financial gift, usually from a family member, which will cover part of or all of the deposit for a house. For many first-time buyers, saving for a deposit can be a struggle and a gifted house deposit may be the only way they can get onto the property ladder. 

It’s important to note that a gifted deposit must be treated as a gift and not a loan. Providing the deposit as a gift means that the giver has no intention of ever owning the property and does not expect payment in return. 

Gifted deposits must be made clear to both the mortgage lender and your conveyancing solicitor from the offset.

In this guide, Compare My Move look at the logistics and legalities of a gifted mortgage deposit and what it means for your mortgage application.

This article will cover the following:
  1. Who Can Gift a Deposit?
  2. How Much Deposit Can Be Gifted?
  3. Proof of Documents
  4. What is a Gifted Deposit Letter?
  5. Do You Pay Tax on a Gifted Deposit?
  6. Save on Your Home Purchase with Compare My Move

Who Can Gift a Deposit?

Mortgage lenders are usually satisfied with direct family members providing a gifted deposit, such as a parent.

“The Bank of Mum and Dad (BoMaD) continues to grow in importance in helping young people take their early steps onto the housing ladder, “ said the chief executive of Legal & General, Nigel Wilson.

“The intergenerational inequality that creates the demand for BoMaD funding continues to widen – younger people today don’t have the same opportunities that the baby-boomers had, including affordable housing, defined benefit pensions and free university education”

According to research from Legal & General and the Centre for Economics and Business Research, the “Bank of Mum and Dad” lent over £6.5 billion in 2017, up from £5 billion in 2016, providing deposits for over 298,000 mortgages. 

Gifted deposits from parents, grandparents or siblings are usually permitted without questions, but some lenders may not approve a deposit from aunts and uncles or cousins. This is also the case for distant family members. In this case, it is worth checking with a mortgage advisor if the gift will be accepted. 

Mortgage lenders are far more cautious with gifted deposits from friends and as a result, this could slow down the mortgage application process. This is due to the risk of someone unrelated laying claim to the property in the future - and the increased risk of money laundering. 

If your gifted deposit is from a friend rather than a direct family member, be aware that your choice of mortgage lenders will be decreased. Many lenders will not accept a financial gift from a friend as a deposit and if a mortgage offer is made, it may not be the best available. You must make sure you know how much mortgage you can afford to borrow.

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How Much Deposit Can Be Gifted?

The gifted deposit can make up the whole deposit required or it can cover it in part, alongside your own savings. 

Mortgage lenders will require a deposit of at least 5% of the price of the

property - often more, especially if the housing market is volatile at the time you buy. The gifted deposit would need to meet this amount or more if it was the only source of funds for the deposit.

As mentioned above, the gifted funds can contribute to savings to make up a larger deposit. The bigger the deposit, the better the mortgage deal offer will be. A higher deposit can also mean lower monthly mortgage repayments. You will also stand to pay back your mortgage quicker.

The amount of money gifted to the homebuyer can be as much or as little as the gifter wishes to give. 

Proof of Documents

Mortgage lenders and solicitors have a legal duty to ensure that your gifted deposit is credible - that is, it does not come from a suspicious source, disguised as being from a relative or friend. 

The person providing the gifts for the fund will need to provide personal documents to both your conveyancer and the lender. These should include photo ID (passport or drivers license) and proof of address (such as a bank statement or utility bill).

They may also be asked to provide bank statements so that your solicitor and mortgage lender can check how the funds have been accumulated. 

What is a Gifted Deposit Letter?

In addition to the paper trail, your mortgage lender and conveyancing solicitor will require to check the gifted money is genuine and legal. Your conveyancer will also ask for a signed Gifted Deposit Letter. 

This letter acts as a declaration from the giver that they are supplying the funds without expectation of property ownerships or repayment. 

The letter must provide details of both the giver and the person receiving the gifted deposit. It will also need to be signed in front of a witness.

A Gifted Deposit Letter should include:

  • The name of the person receiving the gift
  • The amount of money being gifted
  • Confirmation that the funds are a gift with no expectation of repayment 
  • That the gift is motivated by love rather than commercial interest
  • That the gift does not give the person giving it any stake in the property
  • Confirmation that the gift has come from a legitimate source, such as savings. 
  • The gifter’s relationship to the buyer
  • The address of the property being purchased

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Do You Pay Tax on a Gifted Deposit?

You would not be taxed on the gift itself, but if the amount gained interest in your bank or building society account before being used, that would then be taxed. This can be avoided by the giver keeping the amount in their own account until it is needed.

Another tax issue to be awarge of is if the person(s) gifting the deposit dies within 7 years, you may be liable to pay inheritance tax (IHT) on the amount gifted. If this is a concern, it would be worth contacting a financial adviser or consider if you need to hire a mortgage broker

Save on Your Home Purchase with Compare My Move

When it comes to a property purchase, Compare My Move are here to help. From comparing conveyancers, hiring a chartered surveyor and helping you find a removal company, we’ll be there for you. Compare your move with us and save up to 70% on the costs along the way.

Adele MacGregor

Having written for PerformanceIN, WalesOnline, Grazia Magazine and The Olive Press, Adele now writes advice articles for home movers, first-time buyers and house sellers alike.

Graham Norwood

Reviewed by Graham Norwood

Property Journalist and Editor,

With over 15 years of experience in residential property journalism, Graham is currently the editor for both Estate Agent Today and Letting Agent Today.