Gifted deposit: how do they work?

A gifted deposit is a great option for first-time buyers

You’re looking to buy your first property. You’ve been renting for a few years now and you haven’t been able to put enough money aside for a deposit. You’re frustrated because most monthly mortgage payments seldom differ greatly to the monthly rent payment you’ve been making for years. You’re stuck. If any of that sounds in any way familiar, a gifted deposit might be a good option for you.

All is not lost. Gifted deposits are a great way to get a helping hand when it comes to getting onto the property ladder. A gifted deposit is a sum of money given to a close family member as a deposit on a home. It is an increasingly popular method for first-time buyers trying to raise funds. If you’re not too keen on the idea of a high Loan to Value mortgage and have a larger deposit, this option could help. There are varying rules and regulations surrounding gifted deposits depending on the lender. All going to plan, where would you begin the process?

What to do when you’ve been gifted a deposit.

Most lenders will require proof that the deposit is indeed intended as a gift. This will normally be in the form of a written document signed by both the donor and recipient. It confirms there is no expectation for the money to be repaid in any capacity. Some lenders will also ask you to provide proof that the donor does not expect any legal right to the property at any time.

The good news is that the donor is able to gift as much or as little as they choose. Gifted deposits do not have a legal limit and therefore a deposit for a house could be gifted in its entirety. Currently, the average age of a first- time buyer is 30, so gifted deposits are a great way to bring that average down.

Things to consider.

Of course, there are some government regulations surrounding gifted deposits. Arguably the main law to consider involves inheritance tax. In many cases, a deposit is gifted from an older relative like a grandparent.

UK law states that if the donor of a gifted deposit were to pass away within 7 years of the transaction then the recipient is legally required to pay inheritance tax on the full amount.

Obviously, this doesn’t have to be a huge red flag, but it is certainly worth considering before accepting any potential gifted deposit.

Although gifted deposits won’t be available to everyone and largely depend on circumstance, they’re an excellent way of making those first steps into the world of property ownership. If you are a first-time buyer with the possibility of a gifted deposit on the horizon, it’s definitely an option worth considering.

If you’d like to discuss the options available to you, contact us today.

Leave a Reply