Your guide to gifted house deposits

Forget the success of high street lenders, it’s the bank of mum and dad that’s seen the most activity in recent years!

This study found that around 47% of all homes bought by those under the age of 55 will have been funded with the help of parents, grandparents or other relations, with the ‘bank of family’ set to pay out a further £30 billion over the next three years. If you are thinking of gifting a house deposit, or accepting one, you’ll want to read this guide first.

Why is it so hard to save a house deposit?

With the ever-rising cost of living, it is taking would-be buyers even longer to save the deposits they need for their first homes. This means more and more people are putting their property ownership dreams on hold for the long term. Despite the mortgage market and the wider economy experiencing some form of stability in recent months, this very big problem is unlikely to be going away anytime soon as EstateAgentToday discusses:

“The report, Broken Ladder, examines house prices, earnings and mortgage costs in different regions. It finds that, after covering rent and bills, the average first-time buyer in England would need to save 50% of their remaining monthly income over nine years to afford a deposit to buy a home. This rises to over a decade in the East of England, and to more than 13 years in London and the South East.”

With bigger house deposits meaning better mortgage deals, these are troubling times for first time buyers. Thankfully, those who are in the position to lend a helping hand to a grown-up child or other family member are stepping in.

What are gifted house deposits?

Gifted house deposits are just that – they’re sums of money that have been gifted to a would-be property buyer to help with their purchase. It is important to note that giving and receiving part or all of your house deposit as a gift isn’t as simple as transferring the money to the necessary bank account.

Who can and can’t gift a house deposit?

While technically a friend or relative can gift a deposit, most lenders prefer for monetary gifts to come from immediate family members, this includes parents, grandparents or siblings. Gifted deposits can also come from partners in most circumstances.

If said parent, grandparent or sibling is the vendor (i.e. the individual you are buying the property from), the vast majority of lenders will not accept a gifted deposit from this party to avoid any legal complications. Whoever the generous gifter is, the giftee must discuss the use of a gifted deposit with their mortgage advisor and conveyancer in advance.

How do I declare my gifted deposit?

Whatever its origin, all gifted deposits need to be legally disclosed and declared. This is done by providing a gifted deposit letter, which should be read and signed by the individual who is gifting the money.

The gifted deposit letter should provide details of the person receiving and giving the gift (including the relationship between the two), where the funds come from, and the exact amount of money being gifted as part of the transaction. The letter should also confirm that the sum is a gift, not a loan, and legally state that the gifter will have no rights over the property being purchased.

The person gifting the money may also need to supply further evidence (such as bank statements) to prove the origin of the money and pass any necessary anti-money laundering checks. Proof of ID and address will be required too.

What’s the alternative?

There are several alternatives if you’d like financial help from a family member or friend to get onto the property ladder. While gifted deposits are a tax-free option, they are not for everyone and are liable for inheritance tax. You may find that a loaned deposit or applying for a family springboard mortgage to secure your property is a better solution.

Other options include 100% mortgages; read more about the pros and cons of zero-deposit mortgages for further guidance.