Gifted Deposit Letters and Mortgages: Everything You Need to Know

A gifted deposit is money given as a gift to a homebuyer to pay for some or all of the deposit on a property. This is usually given by a close family member.

Here are some key aspects of a gifted deposit:

Source of Funds: Typically, parents or close relatives provide the gifted deposit. However, it can come from other sources, provided there's a clear understanding that it's a gift.

No Obligation to Repay: The crucial aspect of a gifted deposit is that it is not a loan. There should be no expectation of repayment from the donor to the recipient.

Documentation: A gifted deposit usually requires formal documentation, such as a gifted deposit letter, which states that the money is a gift and not a loan. This is important for mortgage lenders, who need to ensure the buyer’s financial liability.

Mortgage Lender Considerations: Lenders will often require proof and assurance that the deposit is a gift. They might also check to ensure that the donor won't have a stake in the property or influence over it.

Tax Implications: Depending on the amount and circumstances, there can be tax implications for the donor, particularly related to inheritance tax. If the donor lives for seven years after gifting the money, the gift is usually exempt from inheritance tax.

Impact on Mortgage Application: A gifted deposit can sometimes affect the type of mortgage one can apply for, as lenders will assess the overall financial stability and source of the deposit.

Amount: There's usually no set limit on how much can be gifted, but it should align with what the donor can reasonably afford without affecting their financial security.

Gifted deposits have become an essential means for many to enter the property market, particularly in high-cost areas or where saving a large deposit is challenging.

A gifted deposit letter is a document that serves as a formal declaration from the party (giftor), usually a family member, stating that they are giving a sum of money to another party (the homebuyer) as a gift to be used for the purchase of a property.

This letter is important because it clarifies to mortgage lenders or other interested parties that the money is a gift and not a loan, which is a crucial distinction in mortgage applications.

This letter should be signed by an independent witness and given to your solicitor. The letter is then submitted along with your mortgage application.

What should be in a gifted deposit letter?

Here are the key elements typically included in a gifted deposit letter. You can also use this section as a guide to write a gifted deposit letter:

1. Who - Relationship, and Address: State the full names of the donor and recipient, their relationship, and the purpose of the gift.

   For instance, "We are assisting our daughter, Jane Doe, in her purchase of 123 An Example Road, A45 6BC."

2. Gift Amount: Declare the exact amount of the gift, including any money gifted towards the purchase costs.

   Example: "We are gifting her £45,000."

3. Reason for the Gift: Explain why the money is being gifted. Commonly, it's out of love and affection, especially for parents helping children buy their first home.

   Example: "We understand that by gifting the sum to her, that our action is a gift of love and affection."

4. Non-repayable Gift: Clearly state that the gift is non-repayable, ensuring it cannot be claimed back in the future.

   Example: "We declare that the gifted deposit is unconditional, non-repayable and does not give us any rights over the property."

5. Solvency Declaration: Declare that the donor is financially solvent to prevent potential legal complications if bankruptcy occurs within five years of the gift.

   Example: "We hereby confirm that at the date of this Declaration we are solvent, our assets exceed our liabilities and we have no reason to believe that we will become bankrupt."

6. Independent Legal Advice: Acknowledge that the recipient's solicitor does not provide legal advice to the donor and that independent legal and financial advice has been sought.

   Example: "We hereby confirm that we are aware that your solicitor cannot provide us with any legal advice in this matter."

Signed and Witnessed: The letter should be signed by the parties in front of witnesses, who also sign the letter. Witnesses should not be family members or anyone who benefits from the transaction.

This letter is crucial in the mortgage application process, as lenders need to ensure that the buyer's deposit is not an additional loan. It helps in assessing the buyer's financial situation accurately and in determining mortgage eligibility. 

Not all mortgage lenders accept gifted deposits. However, many of the major lenders do accept gifted deposits, so it is worth checking with your chosen lender to see if they will accept a gifted deposit from you. Some Lenders will also require the Giftor to supply a Declaration of Solvency, which is a legal document which must be sworn by a solicitor.

If you’re planning to buy a house with a gifted deposit, Winston Solicitors can help you with everything. We understand the complexities and nuances of purchasing a property with a gifted deposit. Our dedicated team is here to guide you through every step of this important journey, offering expert advice and comprehensive support tailored to your unique needs.

Winston Solicitors can help you with everything you need to know. We can help you write a gifted deposit letter, find a mortgage lender who will accept a gifted deposit, and more.

Here’s what you can expect from us:

Personalised Gifted Deposit Letter: We craft a bespoke gifted deposit letter that meets all legal requirements and mortgage lender specifications. Our attention to detail ensures that your letter accurately represents the nature of the gift and complies with all necessary regulations.

Navigating Mortgage Lender Criteria: Finding a mortgage lender who accepts gifted deposits can be challenging. Our experienced solicitors have extensive knowledge of the market and can help you identify and approach lenders who are receptive to gifted deposits, increasing your chances of a successful application.

Legal and Compliance Expertise: We provide thorough legal checks to ensure compliance with anti-money laundering regulations and other legalities associated with gifted deposits. Our team ensures that every aspect of your deposit gift is transparent and legally sound.

Comprehensive Consultation and Advice: From understanding tax implications to ensuring that the gifted funds are appropriately declared, we offer detailed consultations to clarify any concerns you may have about the process.

Liaising with All Parties Involved: We communicate effectively with all parties involved in the transaction, including the donor, estate agents, and mortgage lenders, to ensure a smooth and efficient process.

Post-Transaction Support: Our commitment to you doesn’t end with the purchase. We offer ongoing support and advice to help you navigate any future considerations related to your property and gifted deposit.

Contact us today to learn more about how we can help you with your gifted deposit.