A donated deposit is one of the most common ways to assist someone in getting on the property ladder.
Getting your foot on the all-important first rung is difficult, therefore many first-time buyers seek assistance from the Bank of Mum and Dad. The fact is, giving a deposit is not an easy task. One would believe that all you have to do is deposit the funds to the giftee's account, but this is not the case.
There's a lot more to gifted deposits, and in today's piece, we'll go over all of the frequently asked questions.
A gifted deposit is exactly as it sounds: A financial gift that’s used to form all or part of a mortgage deposit.
The gifter–be they parents, grandparents, friends, or other family members–must have no designs on owning any part of the property being purchased. A gifted deposit must truly be a gift. There must be zero expectation of receiving any return for it to qualify as such.
No stake will be held by the gifter, nor will they be mentioned on the mortgage application or deeds.
Anyone can give a gifted deposit…in theory.
In reality, most gifted deposits are given by parents or grandparents to their children or grandchildren. While it is possible to get a deposit gift from a distant relation or friend, many lenders will insist on more checks being made and a greater burden of proof will fall on the gifter. This can significantly slow down the house-buying process.
So, while it’s possible to obtain a gifted deposit from anyone, gifts coming from anywhere other than parents and grandparents could prove problematic.
Unless your lender has stipulated otherwise, there is no upper limit to how much a gifted deposit can be.
While there isn’t an upper limit, larger gifted deposits may be subjected to inheritance tax.
Everyone can give up to £3,000 away each year, and this can be carried over from the previous 12 months. So, if both parents are alive, £12,000 can be gifted without any concerns over inheritance tax. Naturally, this is provided no other monies have been gifted elsewhere during that two-year timeframe.
Anything above that, or if money has been gifted elsewhere and the allowance was eaten into, inheritance tax could become due.
Yes, both your solicitor and lender will need to know you intend to use a gift as your deposit in order for you to pass their money laundering checks.
Most major high street mortgage providers will have a standardised form for gifted deposit declarations which you simply need to fill out and return.
If not, you’ll need to provide your lender with a gifted deposit letter as a declaration of the gift. These are relatively straightforward to compile, but it’s always a good idea to check with your mortgage broker before sending, as some lenders will have different criteria that need to be met.
A basic outline would look something like this:
In addition to the gifted deposit letter, the person offering the gift will need to provide the following:
Yes, you can indeed add your own funds to the gift in order to up your overall deposit amount.
If you are in a position to add some savings of your own to the gifted deposit, you should definitely do so. Having a bigger deposit means greater choice in the mortgage product market. Better rates become available to you when your deposit amount rises.
As we’re talking about decent sums of money here, the question of how to protect a gifted deposit naturally arises.
This is particularly pertinent for those who are gifting money to someone who intends to buy property with someone else. What happens if they end up going their own separate ways in two, five, or ten years' time? Is there any way to determine what would transpire should that scenario occur?
It’s called a declaration of trust.
A declaration of trust clarifies such details. Typically drawn up at the time of purchase, this legally binding document states exactly what will happen should the parties involved choose to sell by mutual agreement or if one wants to buy the other out. It’s a solid way to protect the interests of all parties fairly.
Without one, repayment amounts and who is owed what can be problematic to resolve.
Finally, it’s important to reiterate the point that a gifted deposit cannot be a loan.
That isn’t to say loans cannot be obtained from family members. They can, but you must declare them as such. Failure to do so could compromise your mortgage application.
If you are in any doubt whatsoever, speak to your Mortgage advicer before submitting anything to your lender.
That’s it for this week, we sincerely hope you found this guide to gifted deposits both useful and informative.
Remember, too, that if you are looking to buy a home in or around Littleborough/Todmoreden, we can help. Face to Face estate agents have been making property dreams come true since 2004, and we’d love to add you to our ever-increasing list of happy, satisfied customers. If you have any questions you’d like answers to, or would like to register your interest as a buyer, please do not hesitate to reach out to our friendly sales staff.
Our team of friendly experts can help you find and secure your ideal home, and they’ll ensure the entire process is as stress-free as it possibly can be too.
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