With the price of properties increasing the mortgage deposit needed has now leat to larger deposits. This has made a property purchase harder for first-time buyers and also home movers. However many parents, grandparents or even distant family members often have surplus funds available and in many cases, they are willing to help out with gifted deposits to help applicants get on the property ladder and also allow them to access better mortgage deals.
In this post, we will look at what the requirements are from both a lender perspective and conveyancing solicitor point of view. There are some sources of the gifted deposits that are an unacceptable source for some lenders whilst acceptable to other lenders. This is where getting financial advice from an experienced mortgage adviser can make all the difference. Although not tax specialists they can also guide you about the tax implications of a gift from parents or other family gifts.
What relationships are acceptable?
The house deposits that we typically deal with are usually from immediate family. These include gifts from parents, stepparents, and parents-in-law. Other relationships that fall into the immediate family category are siblings such as brothers and sisters, again brother or sister in law would normally be acceptable with the biggest mortgage lender requirements. Grandparents’ gifted mortgage deposits would also fall into this category.
Other family members
When the person gifting is family but the not immediate family then this lowers the number of lenders available further. Distant relatives such as uncles, great uncle, cousins etc are acceptable to some lenders but not to others. This is where using an experienced mortgage broker with up to date knowledge and experience of the current market is very worthwhile.
Deposit from Partner or Common Law Partners
When the mortgage deposit comes from a common law partner the a lot of lenders will not accept this. In particular, this can cause issues as the common law partner will also move in and live in the property with the applicant and no doubt contribute to the upkeep of the property and outgoings of the household. Again however mortgage lenders are OK in such circumstances and we have helped first-time buyer and home-mover mortgage applications apply even when the deposit will come from a common law partner who will reside in the property with the applicant. The usual anti-money laundering checks and gifted deposit letter lending criteria applies. The common law partner gifting the deposit will have to sign the occupier consent form. This waives certain rights of a resident living in a property in the favour of the lender.
Deposit from Spouse, Husband or Wife
When a spouse will provide a lump sum gift and the spouse will not be named on a joint mortgage application again many lenders will not lend. Again there are high street lenders that will be OK with this where the deposit is a true gift and where the spouse can provide a good reason as to why they will not be named on the joint application. In many cases, the spouse might have adverse credit problems such as defaultsMissed payments on credit accounts, which can affect a borro..., CCJs or other late payment issues.
What are the implications of inheritance tax of gifted family deposit mortgages?
The biggest risk for gifted deposit mortgages is potential inheritance tax. If the person gifting were to die within the seven-year inheritance tax period and if the estate was larger than the inheritance tax nil-rate band at that time then IHT could become payable on the gift.
The person gifting can gift a small amount each year which is outside of the estate for IHT purposes. This is called the annual gift allowance or tax-free gift allowance. However, if gift deposits are more than this then potentially the gift could be subject to inheritance tax.
What proof is needed for deposits from family members?
When you apply for a mortgage then the broker, lender and solicitor will require proof of the deposit. What is needed for each will be similar but not always the same as solicitors and brokers sometimes have their own anti-money laundering checks within their own companies and they put in place what they feel comfortable with. Some of the items requested will include:
- bank statementsA record of a borrower's financial transactions often requir...
- gifted deposit letter template
- proof of addressEvidence of a borrower's current address, such as a utility ...
- Sometimes lenders have their own gift deposit forms
Where the funds are not from conventional sources such as the gift-giver’s bank account
and instead will come from a property transaction, a pension to gift, sale of an asset, sale of shares or sale of a car the again expert guidance from a broker will be helpful. As long as the gift is a legitimate gift then the proof needed should be available. We can tell you exactly what proof will be needed on your case once we have discussed your situation in more detail.
Anti-money laundering regulations are not there to prevent you from applying but the source of deposit needs to be clear and if the gift is genuine and of a legitimate source then it is usually straightforward.
Gifted deposit summary
Getting on the property ladder by saving a mortgage deposit can be a lengthy process, especially while renting your own place. The chance of mortgage success increases with a bugger deposit and cheaper mortgage products come available thus giving a more competitive mortgage rate. Lower deposit mortgages give bigger monthly mortgage repayments thus any gift available to you will make a massive difference to the range of mortgages available.