According to The Money Charity’s August statistics, if first time buyers were to save at the average rate out of the average UK income, it would take them 26 years to save for a house deposit. Because of this, many are turning to the help of family instead, which is where gifted deposit mortgages come into play.
What is a Gifted Deposit Mortgage?
This is when a donor gives money (with no strings attached) to a home-buyer, in order to help them purchase the property. This usually is to help with the cost of the cash deposit, and it can either cover the full cost or work as a contribution towards the total amount.
The money is transferred from the donor to the home buyer with the help of some paperwork, to make sure everything is above board.
What Needs to be Done First?
Before any paperwork gets involved, the donor and home buyer should agree on the amount that the donor is paying towards the house deposit to ensure there is no confusion further down the line.
The home buyer then needs to figure out whether they need any extra money to pay the deposit, or whether the gifted money will cover the entire amount. If more money will be needed on top of the gifted deposit, the home buyer will have to make up the remaining amount with any savings they have.
Next Step, the Gifted Deposit Letter
A gifted deposit letter is usually required to complete the transaction. Both the donor and a witness will have to sign and date the document.
Once the lender accepts the gifted deposit, the money can then be transferred across to the home buyer and the purchase can be made.
What do you Need to Include?
The gifted deposit letter should outline:
- Who and where the gifted money is coming from
- The name of the person receiving the gift
- The relationship between the two parties (e.g, parent and daughter)
- The total sum of the gift
- Confirmation that there is no expectation of the money being repaid in any way shape or form… i.e, that it is not a loan and that the donor expects no stake/partial ownership of the property
It should be Accompanied by:
- A valid ID (usually in the form of a driving license or passport)
- A recent bank statement as proof of funds so that the lender knows the donor is financially solvent
The Benefit of a Bigger Deposit
Putting down a bigger deposit on a house is beneficial as it means you don’t have to borrow as much, making monthly mortgage repayments smaller. It also gives you access to better mortgage deals.
For more info about the benefits of a larger mortgage deposit, you might want to check out this page.
Is it Tax Free?
Everyone is allowed to gift up to £3,000 a year without it being subject to inheritance tax.
Unused allowance from previous years can be carried over to make the gift a cumulative sum. For example, if you didn’t gift any money last year, this year you could gift £6,000, with no inheritance tax being taken.
Essentially, this means that the entire sum of a gifted mortgage deposit could be sent without being subject to any inheritance tax.