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A Guide to Gifted Mortgage Deposits

Find out everything you need to know about gifted deposits

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: March 23, 2022

Gifted mortgage deposits can be great for anyone who’d otherwise struggle to save for one themselves, but not all types of gifted deposit are treated equally by mortgage lenders.

Depending on who gifted the funds and under what circumstances, some of these deposits are viewed more favourably than others. If this sounds confusing, don’t worry; this guide will clarify everything. Read on to learn more about getting a mortgage with a gifted deposit.

What is a gifted mortgage deposit?

A gifted mortgage deposit is a sum of money or equity given to you as a deposit to put down on a property you’re buying without expecting it to be returned. Homebuyers are increasingly relying on gifted deposits 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 can open you up to far better rates and deals from a wider variety of mortgage lenders.

There are different types of gifted mortgage deposit, including…

We cover each of these deposit types in detail later in the article, but the thing to keep in mind is that not all mortgage lenders will be happy with all of the above. One of the main reasons people with gifted deposits use a mortgage broker is to ensure they’re matched with a mortgage lender who’s most likely to treat them favourably based on the type of deposit they have.

Evidencing a gifted deposit

To get approved for a mortgage with a gifted deposit, one of the most important details you’ll need to clarify is that the ‘gifted’ funds are not a loan. They will want to see documentation signed by both parties confirming this, detailing the donor’s name, the relationship to the buyer, the value of the gift and a statement confirming that the money is not to be repaid.

The lender may also wish to trace the source of the funds and request to see documentary evidence of them building up in the gifter’s bank account or investment statements.

How much deposit can be gifted?

The percentage of mortgage deposit a gift can make up will depend on the lender and other individual circumstances. But, in most cases it’s possible for the whole deposit to be gifted.

In terms of the actual amount of money you can gift, there is no limit but keep in mind that inheritance tax might be payable if the amount is over £3,000 in a single tax year and you die within seven years of giving the deposit funds to the giftee.

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.

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How to get a mortgage with a gifted deposit

Here are the steps to take to get the best mortgage deal if you have a gifted deposit…

  • Get your paperwork together: You can find a list of the documents you’ll need in our guide to mortgage applications but you’ll also need a letter confirming in writing that your deposit is a gift and evidence of where the deposit funds originated from.
  • Speak to a mortgage broker: It’s a good idea to use a broker if your deposit is gifted. This is because they can ensure you’re introduced to a lender who will treat you favourably based on your deposit source. The last thing you want is to choose a lender at random and end up being declined because they don’t accept gifted deposits.
  • Sit back while your broker does the rest: If you’re applying through a mortgage broker, it’s easy street from here. They will guide you through the rest of the process, from application to completion and make sure you get the best deal available.

There are brokers in our network who specialise in arranging gifted deposit mortgages, and we can quickly connect you to one if you use our free advisor-matching service.

Types of gifted mortgage deposit

There are various different types of gifted deposit and your chances of mortgage approval might depend on your mortgage lender’s attitude to the type you have.

The main types of gifted mortgage deposit that lenders accept are…

Family gifted deposits

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

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.

Moreover, 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 find out if their contribution is likely to be accepted.

Deposits gifted from friends

Mortgage lenders approach gifted deposits from friends with more caution than family gifts due to the potential risk of someone unrelated laying claim to the property down the line, and of course, the 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, a mortgage broker might be able to find options for you.

Vendor gifted deposits

This is a type of gifted equity mortgage where some or all of the 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, allowing them to use the discounted amount as a deposit.

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 these days, 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.

Builder gifted deposits

House builder gifted deposits, also known as developer gifted deposits, are another type of gifted equity mortgage incentive. 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 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 because it’s unlikely a builder gift will exceed 10% of the asking price).

Landlord gifted deposits

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.

Lenders that will consider your application will want to check the property has been valued correctly, and request that the borrower matches or contributes to the deposit themselves.

Customer success stories

“I was having trouble getting my mortgage approved because half of my deposit was a gift from my aunt and uncle. The first few lenders I approached all told me nobody would accept my application because of my deposit source, so I was close to giving up hope.

“While researching specialist brokers on the internet, I found Online Mortgage Advisor and read their article on mortgage deposit sources. They seemed to know their stuff, so I had them match me with a broker in the hope of finding a lender who’d at least consider my application.

“Thankfully my broker, Tom, was able to find a few lenders who are flexible with deposit sources, and with his guidance, things went smoothly from there. I can’t thank Tom and Online Mortgage Advisor enough.”

Henry, Middlesbrough

“I was renting a property off my mum’s partner for a few years, and when he decided to sell it, he offered me first refusal and promised to help me with the deposit. Since he and my mum were unmarried at the time, no lender would touch my application because they classed the deposit as a gift from my landlord.

“I spent some time reading up on landlord gifted deposits and this led me to Online Mortgage Advisor. I figured they could help me find a broker with experience advising people with landlord gifted deposits, and I wasn’t wrong.

“They quickly connected me to a mortgage advisor named Ryan, and he assured me that there were lenders for me and drew up a shortlist of them. Without his help, I’d never have found a mortgage, and the rates he negotiated for me were lower than I was expecting.”

Sylvia, Warrington

Key takeaways from this guide

  • 01

    Not all gifted deposits are accepted by lenders:

    Whether your mortgage is approved may depend on who gifted your deposit and under what circumstances.
  • 02

    You should speak to a broker if your deposit was gifted:

    The last thing you want is to be declined for a mortgage because the lender you approached doesn’t accept your deposit source. A mortgage broker can help you avoid this pitfall by matching you with a lender who will view you favourably based on the type of deposit you have.
  • 03

    We can match you with the right broker:

    There are mortgage brokers who specialise in helping customers with non-standard deposit types, and their expertise could be the difference between rejection and approval. We offer a free broker-matching service that can pair you with an advisor based on your needs, circumstances and deposit type.

Call 0808 189 2301 or make an enquiry and we’ll match you with the right broker and set up a free, no-obligation chat between you and them today.

FAQs

Will I pay inheritance tax if the person who gifted my deposit dies?

Only if they die within seven years of giving you the deposit. If this is the case inheritance tax is due, but only if the person’s estate (including the gift) is worth more than £325,000.

When does a gifted deposit become savings?

A mortgage lender will treat funds you were given for a deposit as a legitimate gifted deposit if they were given to you within the last 12 months and you can provide evidence that no repayment is expected and the person gifting the funds will have no rights to the property.

Any gifted funds that have sat in your account for over 12 months will be treated as savings.

When do I need to provide proof of a gifted deposit?

Any money you were gifted in the last 12 months for a mortgage deposit will need to be evidenced to the lender from the outset. You can provide proof that the deposit was a gift by completing gifted deposit declaration paperwork with your solicitor.

This will state in writing that the deposit funds are a gift that does not need to be repaid and that the gifter will have no rights to the property.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the 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 information 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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