Gifted Deposit Mortgage
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Gifted Deposit Mortgage
Paul Collinson talks to us about gifted deposits.
What is a gifted deposit and how does it work?
A gifted deposit is basically a deposit that originated from someone else other than the applicant themselves.
Can I use a gifted deposit as a First Time Buyer?
Yes, you can. You can use that as a First Time Buyer or a home mover. First Time Buyers do tend to have most of the gifted deposits, really.
What are the mortgage criteria for a gifted deposit? Do all mortgage lenders accept gifted deposits?
We deal with nearly 100 lenders, and nearly all will accept a gifted deposit. Most lenders need it to come from close family relatives.
Some lenders will accept a deposit from a cousin, while some will not. I do have a couple of lenders who are pretty relaxed and would accept a deposit from pretty much anyone, including a friend or anyone not related. There are lots of options out there.
Do I need a gifted deposit letter? If so, what will need to be included in it?
You do need a gifted deposit letter. Some lenders have their own template letters, but we still require one for compliance reasons.
Certain things that need to be included will be wording to explain it’s a gift and not to be repaid. The donor gifting the deposit needs to confirm that they will not have any rights over the property after providing the money. So yes, certain things do need to be tied off.
Can I only receive gifted deposits from family members?
Yes, most lenders do limit this to family members, but a small number of lenders are OK with non-family members too.
Is there a limit on how much can be gifted?
No, there really isn’t. I’ve seen amounts from £5,000 up to £15,000, and even into the hundreds of thousands. There’s no limit at all.
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Do you have to pay tax on a gifted deposit?
We’re not allowed to advise on tax. You would need to seek out a tax advisor or a reputable website to find that information.
What will happen if a gifted deposit is not declared?
That would be against Financial Conduct Authority rules and regulations – you really have to declare it. The lender also specifies that it must be declared, as does the compliance team within our mortgage network.
If you were to go to a lender and this does slip through the net, it’s likely to be discovered between the mortgage offer and the loan completing. The lender would just take the offer back and you’d be back to square one again.
How do solicitors check the source of funds?
They need to see a trail of funds and where they’ve originated from. That involves a series of bank statements from the gift owner to the applicant.
How many bank statements do I need for a gifted deposit?
Even without a gifted deposit, we still need three months’ bank statements from the applicant. With a gifted deposit, we need those three months statements plus savings statements from the gift donor.
We need to see the build up of funds, or where that money is coming from. We would also need the donor’s ID, via a passport or driving licence.
What is the seven year rule for gifted deposits?
This is a tax question again, so you need to double check with tax advisors. But broadly, after seven years any gifts become non-taxable from an inheritance tax point of view. You would need to check the details for your own situation.
What are the alternatives to gifted deposits?
The main options are deposits from savings, or equity from a property that you’ve sold. You can use that as a deposit for your next property.
You could possibly have another property and choose to remortgage that to release some money from it to use as a deposit. Sometimes people get the money from inheritance. They’re the main sources that I come across.
What are the pros and cons of a gifted deposit?
Obviously you’re in a very fortunate position if you’ve got someone to give you a nice gift and get you onto the property ladder.
The only disadvantage I can think of there is around the seven year rule. If the gift donor doesn’t live for the full seven years, there may be tax to pay on that gift.
You’ve demonstrated how a mortgage broker can help – is there anything you’d like to add?
There’s nothing else to add, really. We’ve covered all the main questions and hopefully I’ve answered some of those for people listening.
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