One in seven people are currently relying or planning to rely on gifted deposits from family to purchase a home, according to research from Mortgage Advice Bureau.
The practice of receiving gifted deposits is increasing, especially as house prices rise and saving for a deposit becomes more difficult.
Many first-time buyers now depend on these gifts to get onto the property ladder.
However, there are important factors to consider to ensure a smooth buying process.
Danny Belton, head of lending at Mortgage Advice Bureau, said: “It’s important to confirm that the deposit is genuinely a gift.
“Mortgage lenders will often require proof in the form of a ‘gifted deposit letter’ from the donor, confirming they expect no repayment and have no interest in the property.”
“Using a gifted deposit can make securing a mortgage easier, especially if it helps you meet the lender’s deposit requirements.
“It could also help to lower your loan to value. However, not all lenders accept gifted deposits in the same way, and there may be conditions on who can gift the money (typically close family members).”
There are also legal steps needed when using a gifted deposit. Both you and the donor will need to sign a gifted deposit letter, and the donor may need to provide identification and proof of the source of the funds.
The letter should include the names of both parties, the gift amount, and state clearly that it’s a gift with no expectation of repayment and that the donor won’t have any ownership in the property.
Belton added: “Although gifting money towards a deposit may seem straightforward, there can be tax implications, particularly if the donor passes away within seven years of giving the gift.
“If this happens, the gift may be subject to inheritance tax depending on the value of the estate.”
“It’s worth speaking to a solicitor or financial adviser to understand the potential impact and ensure that all tax considerations are properly addressed, especially for large sums of money.”
