For many homebuyers, whether first-time or those looking to move up the property ladder, often the biggest challenge is saving the mortgage deposit.
The average time it takes first-time buyers to save a 15% deposit has risen by 1.1 years since 2012, according to Yes Homebuyers. What’s more, in the South East of England buyers can expect to wait an average of 7.9 years before they can access the same 15% deposit mortgage deals!
Over the years, each generation has faced hugely varying house prices, with Millennials and GenZ experiencing the steepest rise of all. When you consider that previous generations have been able to afford their first homes with significantly fewer savings, it’s no wonder today’s younger buyers worry about their affordability. As a result, this seismic shift has seen a rise in the number of mortgage applications using gifted deposits.
If you too are seeking a mortgage using a financial gift from a loved one, read on to find out everything you may need to know about partial and fully gifted mortgage deposits.
What counts as a gifted deposit?
Gifted deposits can come in all shapes and sizes. Usually, it’s a gifted sum of cash that’s put toward a buyer’s deposit. Occasionally, it covers the full cost of the deposit.
An important thing to note when giving or receiving a gifted deposit, is that the money itself must not be on loan. The keyword here is ‘gifted’, so the ownership of the property lies solely with the buyer. Simply put, those gifting do so with no obligation or expectation to see the money repaid or have any investment in the property.
Do mortgage lenders accept gifted deposits?
Yes. Most mortgage lenders will accept gifted deposits. The terms and conditions, however, will differ from lender to lender so make sure to double-check this ahead of time.
For those on the receiving end of a gifted cash sum, it’s not quite as simple as just accepting the money as a bank transfer and using it towards your mortgage deposit. Due to the nature of affordability checks, lenders will want to know you don’t have any unexpected debt when buying your home. This includes your gifted deposit.
How do I declare a gifted deposit?
Gifted deposit letters are a common practice with most, if not all, lenders. They’re written and signed for by the gifter and provided to the bank as a promise. This letter states that the gifter is happy to part with their money, with no stake in the property. That way, your lender can be sure that you won’t be lumped with the unexpected debt of paying back this sum.
To help, we’ve taken the hassle out of gifted deposit letters by providing you with a gifted deposit letter template. Simply download and personalise your letter, then send it to the lender via their preferred method.
Does a gifted deposit affect the mortgage offers available?
Whilst a gifted deposit may not necessarily unlock the top mortgage deals, it can bump you up into a mortgage bracket that usually offers more generous rates.
By injecting more cash into your deposit, for example by jumping from 5% to 20%, you’ll have far more mortgage options available to you.
Can a friend gift a deposit?
In short, yes. Technically, anybody over the age of 18 can gift you a deposit for your mortgage. That said, many lenders still prefer this to come from a family member, rather than a friend.
Lenders have no obligation to accept your gifted deposit, should it fit outside of their requirements. Problems usually arise where the lender cannot be sure that the money provided is a genuine gift.
If you’re unsure about who can gift you your deposit, simply ask your mortgage advisor to check with your lender on their specific terms.
What documentation will I need to provide?
Other than your gifted deposit letter, documentation usually includes:
- Photographic ID
- Bank statements
- Proof of address, via bills or statements
Looking to secure a mortgage using a gifted deposit? Get in touch with our dedicated team today by calling us on 0345 1645790. Or get in touch via our online form.