Last reviewed on 13th July 2021
Saving for a mortgage deposit can be difficult. Fortunately, first-time buyers can get a mortgage with a gifted deposit. That said, it’s important to take the correct steps in making sure your gifted deposit is acceptable to lenders.
If you wish to use a gifted deposit for a mortgage, lenders and solicitors have a legal duty to ensure that your deposit gift is credible. For instance, your gift can come from family savings but not a third-party loan.
A deposit that is loaned and not gifted will be a red flag for most lenders.
- What is a gifted mortgage deposit?
- How to get a mortgage with a gifted deposit
- What if I need to repay my gifted deposit back?
- Can I use a guarantor instead of a gifted deposit?
- Alternatives to using a gifted deposit for a mortgage
What is a gifted mortgage deposit?
A gifted mortgage deposit is where all or part of your deposit is given to you. Friends and family members can gift you a deposit. That said, most lenders do prefer gifted deposits from family members, rather than friends.
If a mortgage deposit is given to you as a loan, it doesn’t constitute a gift. If you have to pay the deposit back at any point, then this also doesn’t constitute a gift, as it becomes a loan.
It’s important that your deposit also has a clear paper trail. For instance, lenders and solicitors will need to see that the funds have come from a legitimate source. This is due to anti-money laundering regulations and is a legal procedure that won’t be overlooked.
Unclear evidence of your gift can halt your mortgage offer and delay your solicitors in completing the property transaction. Furthermore, it can also result in your mortgage application being declined.
Having the right evidence is crucial in providing clarity to lenders that your deposit is a legitimate gift.
How to get a mortgage with a gifted deposit
By following these simple steps, you can ensure that you’re approaching your mortgage in the best way possible.
Prove that your deposit is a gift
Your lender will require proof that your deposit is a gift and not a loan. This can be quite simple. A signed letter or document outlining that the deposit is a gift and not a loan is typically enough to satisfy lenders.
The signed document should clearly state that the deposit is not a loan and doesn’t need to be repaid back. In addition, it should also state that the gift doesn’t grant your friend or family member any rights to the property.
Your mortgage advisor can provide you with a document template if you’re still unsure.
What should my deposit document say?
Your gifted deposit document needs to be in writing and will need to contain the following:
- A statement that the deposit is a gift and the amount being gifted
- That the gift is not to be repaid and is unconditional
- The gift doesn’t give your helper any rights to the property
- Include your lender’s name and that the gift won’t affect the lender’s position
- The address of the property you wish to purchase
- That the gift doesn’t constitute a financial agreement
- The gift has come from a legitimate source such as savings
- Your friend/family member is financially able to gift you a deposit
The document should be signed and dated. A witness will also need to sign and date the document.
What other documents will I have to provide?
The person gifting you the mortgage deposit will need to provide personal documents to the lender.
- A photo ID, such as a driving licence or passport
- Proof of an address, such as a bank statement or utility bill
- Bank statements to check how the funds for the gift have accumulated
The reason your helper has to provide such documents is to comply with anti-money laundering regulations. Your solicitor will also request similar documents.
What if I need to repay my gifted deposit back?
If your deposit needs to be repaid, then it is not a gift, it is a loan. If the deposit amount is loaned to you, then you’re likely to be rejected by a lender. It’s important to understand that as your deposit is being loaned to you, it also counts against your outstanding debt.
When lenders make mortgage assessments, they’ll calculate your current level of debt. This can include unpaid credit cards and outstanding financial arrangements.
If your deposit is a loan, it really doesn’t help your application in any way. Nonetheless, there may still be some lenders you can approach. It simply depends on the rest of your criteria and the mortgage you’ve applied for.
If your deposit is a loan, it would also imply that your helper has some security over the property. This certainly isn’t good news for lenders. Lenders want to be sure that their funds are secure. Any other interested parties in the property can compromise a lender’s position.
Learn more: What can I use for a mortgage deposit?
Can I use a guarantor instead of a gifted deposit?
Rather than gifting you a deposit, your helper may be able to act as a guarantor for your mortgage. What this means is, they’ll act as a guarantee for the mortgage in the event payments aren’t made.
This gives lenders the power to pursue your guarantor if mortgage payments fall behind. Being a guarantor poses more risk than simply gifting you a deposit. This is why it’s recommended to get legal advice before agreeing to such arrangements.
Read more: Guarantor mortgages explained.
Alternatives to using a gifted deposit for a mortgage
You may find that there are better alternatives that can help you buy your first home. This is why it’s recommended speaking to an advisor who can assess your situation in greater detail.
Lenders vary in who they’ll lend to and how much they’ll lend. Applicants can be declined by one lender, only to be accepted by another. This can also have an effect on the best route towards getting a mortgage.