Gifted deposits refer to money given to someone, usually by a family member, to buy a property. The recipient of a gifted deposit doesn't have to repay the money once it has been given. For instance, if you’re buying a £250,000 property and you need a £25,000 deposit, a parent may wish to give you £10,000 towards it. As such, the remaining £15,000 will need to be paid from your own savings pot.
Here’s how a gifted deposit works:
A gifted deposit is a genuine gift and not a loan. This means it’s given without any expectation of it being repaid. However, the person providing you with a gifted deposit needs to be able to demonstrate where the money has come from. This should then be declared to your mortgage lender and the solicitor involved with your case.
It’s also not uncommon for the giver of the gifted deposit to sign a gifted deposit letter that confirms that the money given was a gift and that they will have no ownership or financial interest in the property once it has been purchased.
Something to note, however, is that the lender will only accept gifted deposits from certain people, including family members and parents, usually. While someone else can provide you with a gifted deposit, you must check with your lender before accepting the money, as they may not allow gifted deposits to come from a particular relation.
A gifted deposit will only affect your mortgage in relation to the loan-to-value (LTV) ratio. The larger the gifted deposit is, the smaller your mortgage repayments are going to be. However, this depends on the value of your home and the interest rate at the time of purchase.
