Why do we need to know where your deposit has come from?
As your Mortgage Broker we want to do our very best to get to know you, establish your mortgage needs and help you to take the next step on the property ladder. To do this, we will go through your requirements, discuss your circumstances, and establish your ability to lend the money you need.
(you could start this journey by completing our simple form here) Part of this is us needing to know what your deposit is made up of and understanding where it is coming from.
I do just need to point out we aren’t just being nosey, honest! This is a regulatory requirement and it is something that your lender, whoever that may be, will need from us when we submit your mortgage application.
Your deposit could be in your savings, a Help to Buy Isa, Equity from your existing property, a divorce settlement, a lottery win (we don’t get many of these needless to say) or in fact a Gifted Deposit.
We ask this early in the process as we want to make sure we are placing you with the right lender. I’ll go into this in further detail a little further on.
What is a gifted deposit mortgage?
One of the most difficult stages of getting on the property ladder, or even upsizing as your family grows, is having that money to put down as a deposit. Saving that amount can be hard to do and a challenging, lengthy and sometimes the most frustrating part of the house buying process, especially for first time buyers.
However, all is not lost, and help is out there if you are lucky enough to have somebody in your life who thinks enough of you to want to give you a leg up on the property ladder. That’s what a Gifted Deposit will help do for you.
It is an amount of money that will either enhance your own deposit or can be gifted to you as your full deposit to help you get the mortgage for the property you want to buy.
Is it a Loan??
No… absolutely not and it’s really important to emphasise the word “Gift”!
If it were a loan, then it would be calculated as a monthly commitment that will need to be repaid and could affect your affordability in borrowing the amount you need to buy the property.
The Gifted Deposit is given to you on the understanding that it is exactly that, a Gift and will not need to be repaid.
What evidence of the Gifted Deposit will be needed?
The donor of the Gift will need to provide written confirmation of this, confirming that the Gifted Deposit does not have to be repaid nor do they hold any legal charge or legal interest in the property being purchased.
The donor will confirm in writing the amount of money they wish to Gift and what relationship they have with you, the applicant. They will also need to provide evidence of the Gifted Deposit Funds by way of a Bank Statement as proof of where the monies are coming from.
It can differ from lender to lender how this information is captured, some lenders have their own Gifted Deposit templates which you will be provided with by your Mortgage Broker and other lenders will ask for a written letter from the donor.
It’s also worth noting your conveyancing Solicitor will do their own checks regarding the source of the deposit for Anti-money laundering procedures so don’t be surprised if you have to provide additional evidence to them further down the line when they are preparing your legal work.
They are likely to need ID from the donor amongst other evidence of where the gift is coming from. However, if we already have a lot of what they need on file which we have obtained to support your mortgage application and with the authorisation from the donor, we will do our best to help you in dealing with your solicitor to progress things as quickly as possible.
Does the Gifted Deposit have to be a certain percentage of the mortgage amount?
The Gifted Deposit amount can be as much or as little as your donor is happy to Gift you. It can top up what you already have, even if your deposit on your new property is coming from the equity in your current house and you are upsizing for example.
It’s worth talking through with your Mortgage Broker the current rates depending on Loan to Value (The amount of deposit you have as a % of the property you are buying. For example a £20,000 deposit on a property of £200,000 is a 10% deposit, therefore, LTV is 90%.)
The more deposit you have, the better rate you get and often it can be a difference of a very small amount that will get you into that next LTV bracket and possibly a better rate so definitely consider this when thinking about how much Gifted Deposit you may be able to receive in addition to what you may already have or be able to contribute yourself.
Are there any Tax Implications regarding a Gifted Deposit?
A Gifted Deposit could have Inheritance Tax implications.
You, the home buyer and recipient of the Gifted Deposit may have to pay Inheritance Tax on the gift if the donor was to die within 7 years of gifting you that money. If, however they live beyond the 7 years of you receiving the money, then there will be no Inheritance Tax due. It is always advisable for the donor providing the Gifted Deposit to seek further advice from HMRC or their financial adviser regarding this.
Who is able to provide you with a Gifted Deposit?
This is another area where a Mortgage Broker will certainly bring you added value and save you lots of time. I mentioned it briefly at the very beginning and it is why it is important for us to understand early on in the process the source of your deposit.
We have access to over 90 lenders currently and their criteria on various aspects of Mortgage borrowing differs from Lender to Lender. One of them certainly being Gifted Deposits.
Some lenders will only accept a Gifted Deposit from an immediate family member. Others view this differently and will accept from a third party such as a family friend. Some lenders will accept the Gifted Deposit from more than one donor if you are lucky enough to have a number of people wanting to gift you the money.
Our expertise will mean we will ensure we place you with the right lender for your individual circumstances.