Saving up for a house deposit can feel like an uphill battle, especially for first-time buyers. But what if there’s a way to give your savings a boost? The good news is you can! Gifted money for a house deposit is a common option, and it could make the difference when you need to get on the property ladder.
In this article, we’ll look into how gifted deposits work, who can give you the money, what paperwork you’ll need, and whether there are any tax implications for either you or the generous person helping you. Let’s open the door to using gifted money for your home purchase and speed up your journey to owning your first home.
What is a gifted deposit?
A gifted deposit is money given to you by someone (usually a family member) to help fund your house deposit. The key word here is gifted, meaning the money is not a loan and you are not required to pay it back. Gifted deposits are a common way for first-time buyers to get onto the property ladder, especially when they may be struggling to save enough for a deposit on their own.
Typically, a gifted deposit will come from close family members, such as parents, grandparents, or siblings. The person gifting the money will need to confirm that the money is a gift, not a loan. This is often done with a gift letter, which we will cover in more detail shortly.
How does a gifted deposit work?
When you use a gifted deposit, the process is slightly different than when you save the money yourself. The mortgage lender will need to confirm that the money is genuinely a gift and not a loan that you will have to pay back. This is to ensure that your financial situation is stable and that you can afford the monthly mortgage repayments.
Here’s how the process generally works:
- Money is gifted: The person gifting the money will transfer the agreed sum to you, typically to your bank account.
- Mortgage application: When applying for a mortgage, you’ll need to declare the gifted deposit. You’ll also need to provide evidence that the money is a gift and not a loan.
- Gift letter: The person giving you the money will need to provide a gift letter confirming that the money is a gift and does not need to be repaid. This letter must include key details such as the amount of the gift, the relationship between you and the donor, and that the money is a gift.
Mortgage lenders may also ask for proof of the relationship between you and the person gifting the money, as well as confirmation that the money has been received and deposited into your account.
Why do I need a gifted deposit letter?
A gifted deposit letter is essential because it serves as formal documentation to prove that the money given to you is a gift and not a loan. The letter provides clarity for the lender, ensuring they understand that the money doesn’t need to be repaid, which is important for your mortgage application. Without this letter, there may be confusion, and the lender may not accept the gifted deposit.
What to include in a gifted deposit letter
A gifted deposit letter should be clear, concise, and contain the following information:
- Donor’s details: The name and address of the person providing the gift.
- Recipient’s details: Your name and address, as the person receiving the gift.
- Relationship: A statement confirming your relationship with the person gifting the money.
- Amount of gift: The exact amount of money being gifted for the deposit.
- Non-repayable statement: A clear declaration that the money is a gift and does not need to be repaid.
- Signature: The donor’s signature, and in some cases, a witness signature or solicitor’s stamp.
The letter should be as straightforward as possible and leave no room for confusion. It will be a key document in securing your mortgage approval.
Can I use a gifted deposit as a first-time buyer?
Yes, as a first-time buyer, you can use a gifted deposit to fund your house deposit. In fact, many first-time buyers rely on gifts from family members to help them get onto the property ladder. The only thing you need to keep in mind is that the gift must be genuine and non-repayable, and you will need to provide a gifted deposit letter to confirm this.
Using a gifted deposit can help you afford a larger deposit, which may make you eligible for better mortgage rates and increase your chances of being approved for a first time buyer mortgage.
Who can give a gifted deposit?
The person gifting the money will usually be a close family member, typically a parent, grandparent, or sibling. Some lenders may also accept gifts from other family members or even friends, but this is less common. The key is that the gift must be from someone who is not financially invested in your property and who does not expect the money to be repaid.
The most common situation is when parents or grandparents offer a gifted deposit to help a child or grandchild buy their first home. The more closely related the donor is, the more likely it is that the lender will accept the gift.
Final thoughts on gifted deposits
A gifted deposit can be a great way for first-time buyers to make homeownership more achievable. However, there are a few things to keep in mind. You’ll need a gifted deposit letter, and the lender will require proof that the money is a gift and not a loan. The key is ensuring that the gift is genuinely non-repayable and that all documentation is in order.
If you’re using a gifted deposit, make sure to check with a mortgage broker to ensure you understand their requirements. With the right paperwork and support, you can increase your chances of securing your mortgage and moving into your new home.