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By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 24th June 2020*

Getting a leg up onto the property ladder can be tough, and saving up enough for a deposit for your first home might seem near-on impossible. 

Some people are fortunate enough to receive a “helping hand” in the form of a gifted deposit towards their mortgage. The most common is a mortgage deposit gift from parents (AKA bank of mum and dad!), but there are several other types of gifted deposit to know about.

This article covers:

If you’re interest in either gifting a deposit to your child or have been gifted a deposit and want to know how this affects the mortgage options available to you, make an enquiry and talk to one of our expert advisors.

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What is a gifted deposit?

A gifted deposit is a sum of money or equity given to you as a deposit to put down on a home without expecting it to be returned. Buyers are increasingly relying on gifted deposit mortgages to boost the amount they can put into a purchase, and it can be a great way to gain access to more competitive deals.

For example, if you’ve saved up a 15% deposit and receive a mortgage deposit gift of an additional 10% you are now within the far more desirable 25% bracket. Not only will this reduce your monthly repayments (by borrowing less), it opens you up to far better rate loan options from a wider variety of lenders.

A gifted deposit is NOT a loan

The crucial thing here is that this payment must be a gift.

For example, if you’re gifting a sum of money to your child, there must be no stipulation for them to pay you back. It’s very important that the gift is not mistaken for a mortgage deposit loan from parents, as borrowing will impact your mortgage affordability.

Lenders will require documentation signed by both parties when a mortgage deposit is gifted, detailing the donor’s name, the relationship to the buyer, the value of the gift and a statement confirming the money is given with no expectation of repayment.

How much of my deposit can be a gift?

The percentage of mortgage deposit a gift can make up will depend on the lender and other individual circumstances. However, in most cases it’s possible for the whole deposit to be gifted. The exception to this is when the borrower has a more complex scenario and other factors mean they are using a more specialist lender – these lenders tend to require the borrower to put some of their own cash in, especially if there’s a history of adverse credit. Often this is a minimum of 5% but can be more.

If you have potentially complicated circumstances or simply want to gain an understanding of what kind of mortgage you could borrow, get in touch and talk to one of the experts we work with.

Family gifted deposits

Mortgage deposit gift from parents

A family gifted deposit is a sum of money given by a family member to form all or part of a mortgage deposit to buy a house. Many first-time buyers turn to parents for help with this, and while many lenders can be stricter with more distant family members, it’s not only parents who can gift a deposit.

Gifted deposit from aunts and uncles

Parents, siblings and grandparents are usually permitted without question, but a gifted deposit from an uncle, aunt or cousin may not be approved by many lenders.

Gifted deposits from distant family members

A handful of lenders will be lenient with distant family, but some will only accept if the family member is a blood relative. Before you accept a family gifted deposit for a mortgage, check with a mortgage advisor to check if their contribution is likely to be accepted.

Deposits gifted from friends

Gifted deposits from friends are approached with a lot more caution than family gifts due to the associated risk of someone unrelated laying claim to the property down the line, and of course, increased risk of money laundering.

When it comes to a gifted deposit from a friend, it is difficult to “prove” that the money is a true gift, and lenders may be wary that you will be required to pay it back and therefore fall into financial difficulty in the future.

However, with so many new lenders entering the market with different rules around what they deem acceptable, there are a handful of lenders who will consider gifted deposits from friends. 

If you want a mortgage with a deposit gift from a friend, keep in mind that it is unlikely that you will have a great choice between lenders and therefore, the rates available may not be as good as if you had your own deposit or a family gifted deposit.

Gifted equity deposits (Concessionary Purchases)

A gifted equity mortgage deposit is when someone offers to sell you a property at a discounted rate from the true market value. This is also known as a “concessionary purchase”.

Most lenders that don’t accept this form of deposit, base the value of the property on the agreed purchase price, and therefore you will need to generate a deposit based on that figure. For example, if a £250,000 home is discounted to £225,000, the buyer will need to put down a minimum of 10% deposit (£25,000).

In other scenarios, lenders may accept the discount as a form of deposit, using the true market value of £250,000. With £25,000 deducted, this accounts for 10% of the value of the property (minimum deposit required).

However, these situations are rare and you will stand a better chance if you also contribute to the deposit yourself (some lenders still require a minimum of 5% personal deposit to prove your own financial commitment to a mortgage).

Some types of gifted equity mortgages are more common than others in the UK, and there are four different types you need to be aware of:

Vendor gifted deposits explained

This is when some or all of the mortgage deposit is paid by the vendor (seller).

The vendor, or person responsible for the sale of a property, offers the buyer a property at a discounted purchase price. For example, if a house is originally marketed at £300,000, the vendor may offer to sell for £270,000 (maybe for a quick sale, or if the house has been on the market for a while). The £30,000 discount is 10% of the value, which can then be used towards the buyer’s deposit.

Vendor deposit schemes aren’t hugely common in 2019, and not many lenders accept vendor gifted deposits for mortgages due to the associated risk of a buyer putting none of their own hard-earned money in. Essentially, if the borrower puts no money in they are deemed less invested in the property and more likely to walk away if times get hard.

Lenders will also want to know why the vendor wants to sell at a cheaper price and, if you do find a lender that accepts, they will want to make sure the original asking price is the true value. 

There may also be a limit to the amount of discount that will be accepted as deposit, whereas other lenders will insist on the borrower matching the value, or at least contributing some of their own cash on top of the gift to prove their investment.

What is a builder gifted deposit?

House builder gifted deposits, also known as developer gifted deposits, is a similar concept to vendor gifted deposit. However, in this case it’s the building developer that offers the buyer a property at a discount to the original asking price.

Gifted deposits from builders are generally for new builds, and are fairly common as a way to incentivise quick sales.

Lenders can be dubious about builder deposit paid mortgages as new builds are typically seen as higher risk, and as such require higher deposit anyway (typically 15 – 20%). 

Again, those lenders who will consider you will want to ensure the value of the property matches the original asking price. Also, most will stipulate that the borrower puts in some of their own cash as well (usually a necessity anyway because it’s unlikely a builder gift will exceed 10% of the asking price).

How do landlord gifted deposits differ?

A landlord gifted deposit is where a buyer purchases a property from the landlord at a discount purchase price, whereby the discount can then act as the deposit. 

Gifted deposits towards a mortgage from landlords are not very common, but there are lenders out there who will consider them. 

Similar to the above, any lenders that consider your application will want to check the property has been valued correctly, and request that the borrower matches or contributes to the deposit out of their own pocket.

Buying at a discount from family as a gifted deposit

A concessionary family gift deposit differs from a normal family gift because in this situation a family member will be selling the buyer their property at a discounted rate rather than contributing cash. 

Family gifted equity is common and, typically, the property will be sold at a far greater discount than its true market value.

Lenders are therefore far more comfortable with these situations due to lower perceived risk and because the arrangement appears genuine. As a result it’s likely more lenders will accept the discount as the whole deposit rather than asking you to contribute yourself on top.

If you have a gifted deposit for your mortgage and want to know what this means in terms of the mortgage deals you have available, talk to one of the expert whole-of-market brokers we work with. 

Call 0808 189 2301 or make an enquiry. The service we offer is free, there’s no obligation and we won’t leave a mark on your credit rating.

Other individual circumstances affecting gifted deposits

Self-employment

Lenders are gradually becoming more open to lending to new business owners, but you’ll typically need a minimum of one year’s filed accounts to be considered by (a very limited selection of) lenders.

Most feel more comfortable if you have at least 3 years of books to prove you have a reliable form of income. However, there are specialist lenders who will consider 12 months, and, given the right circumstances, there’s even a handful willing to accept less than this.

Gifted deposits, especially if they make up 100% of the value, will inhibit your prospects. If possible, wait until you have a solid accounts history and can contribute to the deposit out of your own pocket. This will give you access to the most competitive deals.

Mortgage deposits as a gift with bad credit

As with all bad credit cases, it is very much situation-dependent. Below is a list of potential credit issues you may have experienced and could impact a mortgage application:

  • Adverse credit overview
  • Low credit score
  • Mortgage Arrears
  • Defaults
  • County Court Judgements (CCJs)
  • Individual Voluntary Arrangements (IVAs)
  • Debt Management Plans (DMPs)
  • Bankruptcy
  • Repossession

If you have a 100% gifted deposit and bad credit history, your chances of being accepted for a mortgage are likely to be less than someone with a clean record.

No matter how large a deposit you have, if you don’t contribute to the deposit yourself, lenders are less likely to consider you because they have no historical proof that you are properly invested and it may raise doubts on your ability to make the repayments.

Gifted deposit and non-standard construction property types

Any property that deviates from the standard definition of “house built from brick and/or block walls with slate roof” is classed as a non-standard construction

Such properties are generally seen as less stable investments, which means fewer willing lenders and less competitive rates for the buyer.

While each lender will have their own requirements, it’s likely that you will need a far higher deposit and, if some of it is gifted, you will probably have to match or exceed this sum so lenders know you’re fully committed to the property.

Speak to an expert about gifted deposits

If you’d like to know more about getting a mortgage when you have gifted deposit of any kind call 0808 189 2301 or make an enquiry and we’ll match you with one of the expert brokers we work with.

They’ll be happy to answer your questions and work to find the best available mortgage for your own individual circumstances. Because all the brokers we work with have access to the whole market, they can help save you time, money and a whole heap of hassle.

We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.


 

Updated: 24th June 2020
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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