Gifted deposit or gifted equity mortgages how they work and what is the process.
Reading up on a subject on the internet is helpful but can fall short on delivery, for instance, one of their biggest searches on our website is ‘gifted deposits’ for mortgages. Invariably applicants digest this and then on their own try and make it work for them – only to call us part way through the mortgage process for us to unravel the mess they have got themselves in.
Schemes of this nature are complex and professional advice should always be sought to ensure the case is positioned in the most favorable way to the lender otherwise time, money and loss of your dream home can happen.
Gifted deposits – gift of money
These could come from direct family member friends or associates.
A good number of lenders understand that deposits are often difficult to raise entirely from the applicants own resources. They therefore will accept an olive branch from immediate family such as Mother, Father, Brother and Sister. Some may even accept gift from Grandparents but they would be in the minority.
There are a couple of lenders that will let you accept gifts from unrelated people but extra documentation and rationale may be needed to reassure the lenders about the type of transaction.
The lenders key concern is the fact that the person lending the money should not have a claim towards a property at a later stage so often they will ask for a gifted letter of deposit to be drawn up by the person making the gift to state they waive all their rights.
If you transact a ‘gifted deposit’ mortgage via Niche Advice we will provide all the necessary information and templates from our extensive library.
Gifted Equity – i.e. the difference between the value of the property and any mortgage or loan secured on it
This situation could arise when family members, home builders, property developers and existing landlords offer the opportunity to purchase a property under its true value.
The gift of equity from ‘family members’ treads a similar path to the ‘gifted deposits’ described above, the main difference is fewer lenders offer mortgages for this type of arrangement.
Incentives from home builders, property developers and landlords are less clear cut. Generally lenders are nervous of an unrelated third party offering property undervalue and question the validity of the bargain. It is fair to say that if the incentive seems too good to be true it normally is, and what lenders do not want on their books is a property that cannot be sold at the price they were expecting just in case the mortgage goes into default, and as such, lenders offer limit incentives to 5%-10% to guard against such eventualities.
Again at Niche Advice we have documentation and experience to talk and walk you through the best case scenario for your individual predicament.
For more information on gifting equity or gifting deposits please contact us on (020) 7993 2044 or alternatively complete the online enquiry form on the right-hand side of this page.
Payam Azadi is a partner at Niche Advice Ltd who are Independent Financial and Mortgage Advisers in London.