Gifted Deposits – All You Need To Know – Forbes

April 10, 2022 By admin

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First, we provide paid placements to advertisers to present their offers. The payments we receive for those placements affects how and where advertisers’ offers appear on the site. This site does not include all companies or products available within the market.
Second, we also include links to advertisers’ offers in some of our articles. These “affiliate links” may generate income for our site when you click on them. The compensation we receive from advertisers does not influence the recommendations or advice our editorial team provides in our articles or otherwise impact any of the editorial content on Forbes Advisor.
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The comparison service on our site is provided by Runpath Regulated Services Limited on a non-advised basis. Forbes Advisor has selected Runpath Regulated Services Limited to compare a wide range of loans in a way designed to be the most helpful to the widest variety of readers.
Saving up enough of a deposit to buy a home is one of the biggest challenges faced by first-time buyers. 
With the average UK property price now sitting in the region of £260,000, even the minimum deposit requirement of 5% equates to a heady £13,000. And that’s before property-buying taxes and fees are accounted for.
Saving such a sum of money is simply unachievable for many. And it’s why an increasing number of parents are providing financial help for their offspring in the form of gifted deposits.
Here’s all you need to know about how they work.
A gifted deposit is simply money that is given to a homebuyer to help them purchase a property. The funds can be a contribution towards the deposit, or the whole deposit. But crucially the money must be a gift, not a loan.
As such, the money does not need to be repaid and whoever has gifted the money has no rights or legal interest in the property being purchased.  
Trussle is a 5-star Trustpilot rated online mortgage adviser that can help you find the right mortgage – and do all the hard work with the lender to secure it. *Your home may be repossessed if you do not keep up repayments on your mortgage.
With many first-time buyers struggling to save up enough of a deposit to buy a home, gifted deposits can help speed up the homeownership process.
Mortgage lenders require a 5% deposit at the very minimum, but the more you save, the more likely you are to secure a competitive mortgage rate. A larger deposit also means you won’t need to borrow as much, resulting in cheaper mortgage repayments.
There are no specific ‘gifted deposit mortgages’. You will have access to the same mortgage deals as everyone else. But by boosting your deposit from say, 5% to 10% or from 10% to 20%, the number of mortgages available to you will be greater.     
Related: Mortgage Calculator: How Much Will Your Home Cost Each Month?
However, lenders are not obliged to accept gifted deposits from mortgage applicants. And those that do accept them often have their own stipulations about how they can be used and who can give them.
Mortgage lenders are generally more comfortable if the person gifting the money is an immediate relative, such as a parent, sibling or grandparent. They are usually more cautious if the money is being gifted by a distant relative, such as aunts and uncles, or by someone unrelated to you.
If the money is coming from a friend, for example, it can be difficult to prove that it’s a ‘true gift’ which means there is a greater risk of someone laying claim to the property later on. Lenders are therefore more likely to turn you away in this situation.  
Most lenders will also refuse gifted deposits from the person selling the property. This could be the case if you’re buying a home from a friend or family member, for instance.  
At the height of the Covid-19 pandemic, many lenders tightened their lending criteria. Nationwide, for example, only accepted gifted deposits of up to 25% on its 90% mortgages, with buyers needing to prove the remaining three-quarters of their deposit came from their own savings. 
These rules have since been relaxed, but requirements can change frequently. Some lenders, for example, may require first-time buyers to put in at least 5% of their own cash, particularly if they have poor credit.
Before accepting a gifted deposit, it’s good practice to speak to a mortgage adviser who will be familiar with rules across different lenders which will help you find the right mortgage deal.  
Whichever mortgage provider you go with, it’s crucial that you inform both your lender and your conveyancing solicitor if you are planning to use a gifted deposit. If you don’t it can cause delays in the conveyancing process.
The person gifting you the money will usually be required to sign a ‘gifted deposit letter’ and confirm that there is no obligation to repay the funds. 
Most mortgage lenders have a gifted deposit letter template to follow, but if not, the letter will need to contain the following information:
The letter should be signed and dated by the gifter in the presence of a witness. The gifter will also need to provide proof of ID, such as a passport, as well as two forms of proof of address such as a utility bill or bank statement.
In addition, your solicitor will need to see proof of funds. This should be straightforward if the funds come from a source such as the sale of a house. But if the money has been saved up over a period of time, the gifter may need to provide a series of bank statements to meet your solicitor’s anti-money laundering checks.
Trussle is a 5-star Trustpilot rated online mortgage adviser that can help you find the right mortgage – and do all the hard work with the lender to secure it. *Your home may be repossessed if you do not keep up repayments on your mortgage.
There are no rules regarding the minimum or maximum size of a gifted deposit. But larger gifted deposits could be subject to inheritance tax.
Up to £3,000 per year can be given away by an individual without attracting inheritance tax. Any unused allowance can also be carried over to the next year, so each parent could give £6,000, providing they haven’t gifted money to anyone else.
However, if the amount gifted is greater than this, it could be liable to inheritance tax if the gifter dies within seven years of making the donation. In this situation, it would be classed as part of the estate. If the total estate, including the gift, comes to more than £325,000, up to 40% in tax would be due.
Gifted deposits can also pose a risk for the donor. If your child is buying a property with a partner or friend, for example, it’s important to consider what would happen if they later went their separate ways.
To help protect your money, it can be sensible to ask the solicitor working on the property to draw up a declaration of trust or deed of trust. Here you can state that the money was given to your child and not to their partner or friend. In the event they split up, this will allow your child to keep ownership of the gifted funds.
A declaration of trust can also be used by those buying the property to state what will happen if they break up – though this could be affected if your child later marries the person they have bought their home with.
If a gifted deposit does not suit, there are other options for parents when it comes to helping their children get on the property ladder. These include:
Guarantor mortgages: With this type of mortgage, a family member or friend agrees to cover your mortgage repayments if you’re not able to.
No deposit or 100% mortgages typically require a guarantor, but if the borrower defaults, the guarantor is liable for any payments. If they have used their own property as a guarantee for the mortgage, they also risk losing their home.
Springboard mortgages: So-called ‘springboard’ or family deposit mortgages enable a family member or friend to put a 5% to 10% deposit in a savings account with the lender, and the mortgage is offset against these funds.
To ensure it would be there to cover any shortfall if the property had to be sold or repossessed, the funds must be left in the savings account for a set period of time. Interest is paid the money, but there is a risk that your loved one may not get all of the funds back.    
Joint mortgages: Another option is to apply for a joint mortgage with your child. This would make you equally liable for the repayment of the loan and affect your access to any future borrowing. But, thanks to your combined income, you may be able to apply for a bigger mortgage or secure a cheaper interest rate. 
Be aware, however, that if you already own a property, the new one will count as a second home and an additional 3% stamp duty will be due. Capital gains tax could also be payable if you later sold the property. 
A handful of lenders allow you to take out a second mortgage without being added to the property’s title deeds which could reduce your tax liability. Be sure to seek independent advice and compare your options carefully.
I've been writing about personal finance issues for many years across a wide range of websites, magazines and newspapers. My role is to demystify financial products, explain people's options and help them make the most of their money.

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