Mortgages Remortgages – Mortgage Broker
The Best Advice for a Gifted Mortgage
In simple terms, a gifted deposit is an amount of money that has been aided by a family member to be used as a deposit on a property. Whilst there are also options for friends or third parties to gift a deposit too, this is not always promising amongst lenders and consequently much more difficult to secure.
For first-time buyers, it is a Struggle to get their foot on the property ladder and it is much more obvious today than it has been in other recent years. With more and more young first-time buyers turning to their parents for financial support, this is where the process of gifting a deposit becomes a popular option.
If you are looking to gift a deposit, then it is important that you have a thorough understanding of what the process involves in order to prevent any delays, or worst-case scenario, that your mortgage is withdrawn at a later stage.
As the principle measures surrounding a ‘gifting deposit’ is quite ‘strict’ to some extent, or perhaps it is not as straightforward as people might think, it’s important that you know exactly what the process involves and what you have to do.
We have put together this useful article discussing everything which you need to be aware of and ensure you have completed if applying to either provide or receive a gift deposit.
What counts as a gifted deposit?
Did you know, that there are actually five different options for gifting a deposit which are available on residential and Buy-to-Let purchases.
So, what are the five different options, and which could be more suited to your personal position.
Parent gifted deposit. Wanting to support your children is not a strange thing to do, we all want what’s best for them. By helping them to acquire a mortgage, you can either provide a whole or partial deposit, this is usually accepted by lenders, however you will be required to sign a ‘deed of gift’ agreeing that the money is a gift and consequently will not be repaid at a later date.
Whilst this could be a favourable option for some families, there is the downside that once the gift is given and thus cannot be repaid, these funds are no longer controlled by the parents meaning that they may only be able to support one child.
Not only this but if the child who you have gifted the deposit to is in a relationship which then ends further down the line, this could raise problems regarding returning the deposit. It is, therefore, advisable that you perhaps look to seek legal advice prior to agreeing to the gift deposit in order to ensure that both parties are protected.
Inter-family sale. The option of an inter-family sale might be a suitable route in certain cases in which the parents have offered to sell a property to one of their children, but at lower value to the current market cost.
In this case, the equity is then thought of as replacing the deposit meaning that no other funds will be transferred.
Genuine sale below market value. This option may be applicable if you have been renting a property for a long time and your landlord at some point offers to sell the property to you at a lower cost.
This could be a great option for first-time buyers and similarly to the previous option, the equity is then treated as the gift and you would not need to worry about financing a deposit.
Retained deposit This method is offered by a number of lenders and involves a sum of money being funded by the purchaser as well as the family who will also provide a sum of money, (10% through the Family Springboard Mortgage) which is placed into a special saving’s account and cannot be accessed for three years, but which does earn interest.
The advantage of this option is that unlike the parent gift deposit, this scheme means that the savings are only tied up for a maximum of three years allowing the possibility of still being able to support another one of your children if they too require financial assistance for a deposit on a property.
The deposit is secured as a second charge on the parents’ property Fewer lenders may offer this scheme but has the advantage that the parents or family members do not have to fund
Gifting is not necessarily the easiest process and unfortunately is not as simple as making an agreement with your child or family member to transfer them the funds which they can then claim as theirs.
Your solicitor will at some point require proof of funds from the children who received the gift deposit which means that it is essential that you have followed the correct procedures when looking to gift a deposit.
To ensure that the process of gifting a deposit is smooth, hassle free and successful, take a look at these essential steps that you will need to follow.
The gift deposit must be confirmed in writing
The very first thing you will need to do is to write a letter to the child who you are gifting the deposit to confirming that the money you will be transferring is for gifting purposes only, as well as that you will not have any rights over the property itself.
Once you have written and signed a copy of the letter to the child, be sure to retain a copy which you can provide the solicitor with.
Although this might appear to be a relatively simple step, it’s essential that it is completed straight away before continuing with the process as it will provide evidence that you as the parent have no interest in the property and that by providing the funds to the child in gift form, you will not be expecting to receive the money back.
Mortgage lenders can be fearful that later down the line, the parents may claim that the deposit was only intended to be a loan. To avoid this problem happening, make sure that you speak to your mortgage lender and ensure that they are happy for you to receive the gift deposit and for the process to continue.
As well as the initial letter confirming that the funds will only be used as a gift deposit, the solicitor will at some point also need to be provided with the identification from the individual who is responsible for gifting the deposit.
Different solicitors may require certain criteria which they ought to inform you about, however, if you are unsure of what identification is required, then do not be afraid to ask.
The most common forms of documentation which the individual gifting the deposit may be asked to provide are:
Utility bill from the last three months
Another requirement which the solicitor dealing with your gifting deposit will have to obtain from you to ensure that the transfer of funds is legitimate is to confirm where the gift deposit funds have come from.
This usually occurs in the form of an expensive asset such as a house, as well as a pension or selling of a share. If this is the case, then it is usually relatively easy to prove using documentation on how the money for the gift deposit has been raised.
Demonstrating where the deposit money has been obtained becomes a little trickier if you have been saving the earnings for a long time, or if the funds have been collected from different sources.
You will still be required to provide detailed evidence of how the money has been saved in order to meet the criteria of the Anti-Money Laundering (AML) regulations. Bank statements from the last two to six months are a useful way of proving how the money has been acquired through your savings.
The more detail you can provide your solicitor with as to how you have accrued the deposit money, the easier it will be to pass the AML requirements and continue with gifting the deposit.
To recap on what we have discussed in terms of the stages involved in gifting the deposit, you need to ensure that before any money is transferred that you have followed these three important steps:
Acquire a letter confirming that the funds will be used as a gift only and not as a loan
Obtain proof of ID suitable to the solicitor’s requirements from the person gifting the deposit
Put together a proof of funds detailing how the money was obtained by the individual who is gifting the deposit.
Lastly in terms of providing the solicitor with the above information, it is important that all of the evidence is given in its original format. Although scanned versions are useful for retaining spare copies, it is the original documents which the solicitor will need to see.
We hope you’ve found our article discussing what gifting a deposit is, what your various options are and how to go about the process beneficial. Gifting a deposit is a great way of helping a family member to secure their first property, however as we have drawn upon and shown you throughout the article, it is fundamental that you follow the various steps involved in gifting the deposit correctly in order to effectively demonstrate the validity of your request.
For Any further questions, please contact us for a free initial, no-obligation financial advice.
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