Gifted House Deposits: What Do You Need to Consider?

One of the most time-consuming and challenging parts of buying your first home is saving enough money for a deposit. Due to this, some parents and family members are now choosing to provide younger generations with some, or all, of the deposit money that they need to buy their first house.

Statistics showed that at the end of 2016, one in 12 of the properties bought was funded by a gifted deposit*; they’ve helped to get many first time buyers onto the property ladder. But what do you need to think about if you’re considering gifting, or have received a gifted house deposit? We explain all below.

What is a gifted deposit?

A gifted deposit is money given to a homebuyer to buy a property, and can equate to some, or all, of their deposit. Different to loans, gifted deposits are given with the understanding that the money doesn’t need to be repaid.

How does a gifted deposit affect a mortgage?

Gifted deposits are commonly accepted by mortgage lenders when they’re given by family members, such as parents or grandparents. For example, Newcastle Building Society’s lending policies welcome deposits gifted from parents and other relatives, as long as there’s no repayment required and the underwriter is happy to proceed. All lenders will expect proof of deposit as part of the application.

What is proof of deposit?

Anyone that applies for a mortgage will need to provide proof of deposit as part of the lending process, usually as part of the supporting documents.

When using a gifted deposit, applicants will be required to provide confirmation that they received their deposit as a gift. Often, this requires signed confirmation by the donor, stating:

  • What their relationship to the applicant is;
  • The amount of money they wish to gift;
  • That the gift is non-refundable;
  • That they will hold no legal charge over the property.

The donor may also be required to provide a bank statement, as proof of where the money has come from. This is part of standard money laundering checks, and nothing to be worried about.

How much can you gift for a house – and are there any gifted deposit tax implications?

The amount gifted as a house deposit can be as much, or as little, as the donor chooses.

However, there is a potential financial implication when it comes to tax. If the donor passes away within seven years of the money being gifted, the home buyer may be required to pay inheritance tax on the gifted deposit. This however only applies if the value of the property (including the deposit­) is worth more that £325,000.

Here at Newcastle Building Society, our friendly, approachable team are experienced with processing gifted deposits as part of the mortgage application process, and will be able to help you every step of the way. Before making your application, you can find out how much you could borrow using our online mortgage affordability calculator, but should you require any assistance, please contact one of our qualified mortgage advisers by calling us on 0345 606 4488, or by booking an appointment at your nearest branch.

Why not take a read of our other helpful blog posts for first time buyers too, including our advice on What to Look for When Viewing a House  that includes a house viewing checklist, which will come in handy when you begin the exciting process of hunting for your first home, and How Do You Make an Offer On a House?  to guide you through making an offer for the best chance of success.

You can also find out even more about the process of buying your first home at our fantastic First Time Buyers events . Find out now when our next event will be taking place and register to attend – we’re here to help you open the door to owning your very first home.

Your mortgage will be secured on your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

*http://www.telegraph.co.uk/personal-banking/mortgages/bank-mum-dad-now-funds-one-12-house-purchases/