Gifted mortgage deposits

Buying a home with a parent’s help

Many millennials rely on the Bank of Mum and Dad to help them get on the property ladder. The deposit required to secure a mortgage now is much higher than previous generations would have needed to save, so parents will often contribute some or all of it. If you’re considering this route to homeownership, either on your own behalf or your child’s, here’s what you should know.

What is a gifted mortgage deposit?

A gifted deposit is an amount of money given to the mortgage applicant, to reduce the amount they need to borrow to buy a house. It must be given with no expectation of repayment. To ensure that this is the case, the applicant will need to provide a document confirming these terms, signed by the donor.

Who can provide a gifted deposit?

Technically, anyone can provide the money, if they’re willing to give it as a gift (though some lenders are more likely to approve the mortgage if the gifted deposit comes from a family member). In reality, most gifted deposits are given by the parent or parents of the applicant.

Do all lenders allow gifted deposits?

No, not all lenders allow gifted deposits. Mortgage applications require you to state the source of the money that you are using for your deposit, and you can be refused a mortgage if you haven’t saved the money yourself. However, there are many options to choose from if you’re using a gifted deposit.

Can your deposit be 100% gifted?

Some lenders will allow this, but it’s becoming less common. Earlier this year, Nationwide, one of the major mortgage providers, changed its rules concerning gifted deposits. The building society will now only allow 25% of the deposit to be gifted, while the remaining 75% must be the applicant’s own money.

However, this rule will only affect buyers looking to borrow 85% or more of the value of the property. So, if the deposit is equal to 16% or more of the total property value, buyers may still be approved when applying with a gifted deposit.

These new rules are to help ensure that buyers are not borrowing more than they can afford to repay and that the lender will be able to recoup the money lost if the buyer defaults on the loan.

What are the other options for those with gifted deposits?

There is a wide range of mortgage options for those with gifted deposits. Plus, there are other options for people who don’t have a large deposit, such as the Help to Buy scheme or a guarantor mortgage.

It’s best to speak to a mortgage broker to ensure that you have access to all the mortgage products on the market and choose the one that’s right for you.

All Rights Reserved. Information contained in this article and on our website does not constitute advice and is provided for information purposes only. Recipients should not act upon it, but should seek professional advice relevant to their own situation.