Wed 10 May 2023

What is a gifted deposit?

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Buying your first property can come with a seemingly daunting amount of rules and regulations. Estate agents in Basildon are often asked questions about gifted deposits and how to understand them. This article aims to offer some practical tips and advice regarding gifted deposits and how they work. You should always consult your solicitor or seek independent financial advice when arranging your deposit to ensure that you are fully up to date with any altered regulations that may evolve.

What does a gifted deposit mean?

A gifted deposit is a sum of money that has been given to the homebuyer with the sole aim of assisting them to buy a property. This amount may total the entire property deposit or can make up just a portion of the total sum required. The larger amount you can raise towards your deposit the better, as lenders will look more favourably on those who have raised higher funds.

Who can gift a deposit?

When it comes to gifting a deposit, certain rules and regulations must be followed. It is not as simple as a friend or relative simply transferring money into your bank account. Gifted deposits are most provided by immediate family members such as parents or grandparents, but friends and more distant relatives may also be able to gift a deposit with the appropriate checks being made by your lenders. It is always worth enquiring with your bank to see what the process may involve.

Most lenders will require something called a gifted deposit letter. This will require details in writing such as:

  1. The full name of the person who will be receiving the monetary gift.
  2. A declaration that the gift will not need to be repaid.
  3. The amount of money being gifted.
  4. The source of the funds.
  5. The nature of the relationship between you.

Can I add my own savings to a gifted deposit?

Absolutely! The more deposit you can raise, the better chance of gaining a mortgage you will have. Not only that, but you could increase the amount that lenders will offer. However, don’t get caught up in the excitement of things and choose a property at a high price point just because the offer is there. It is important to stick to your budget and only borrow an amount that you feel comfortable repaying in your chosen timeframe.

Gifted deposit pros and cons

Pros - the main advantage of receiving a gifted deposit is that it will help to speed up your property buying journey and allow you to get onto the property ladder quicker. You may also receive lower mortgage rates with a higher deposit, thanks to this type of help from a relative.

Cons - it is important to think about how accepting a gift may change the relationship between yourself and the person offering the funding. A falling out down the line could make things tricky and whilst legally there should be no issue here, there may end up being bad blood. Such occurrences are unlikely but should always be considered.

Whilst a gifted deposit can be tax free, there are certain caveats to this. For example, if the person gifting your deposit has an estate worth over £325,000 and was to pass away within 7 years, you may be liable for inheritance tax. Your financial advisor will be able to explain this in full before any major decisions are made.

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