Can I fund my mortgage deposit by a gift?
Who can make gifts towards a purchase of a property?
What happens if my deposit money is coming from abroad?
And many more ‘gifted deposits’ questions answered by resident mortgage expert
Mr Payam Azadi
We are seeing more and km9re Gifted Deposits when it comes to mortgages. The reality is the first time buyers today are not normally as affluent as their parent’s generation. The culture of saving has diminished as more often than not people are scratching around to make ends meet as such many house purchasers are looking for help towards their deposit. To bridge the gap in the shortfall between their savings and the amount needed to satisfy the mortgage lenders; many applicants are turning to others for gifts towards their deposit from others which can be acceptable in certain instances.
This all sounds straight forwards and practical. However, the mortgage lenders are very anal and sceptical about ‘gifts’ and in this article I will explain the best way to approach this touchy subject so your mortgage application will have a greater chance of being successful.
Background as to why lender’s do not like ‘gifted mortgage deposits’
This can be categorised into three key areas: i) preference for personal savings ii) undeterminable third party interest iii) if the property is an investment. It is I believe important that I elaborate here as knowing the direction the underwriters are coming from puts you in a better position to tackle the issue head on.
– Lender’s preference for personal savings
In short, a mortgage is a regular ongoing commitment. Originally building societies looked for you to be saving regularly with them for a number of years before they would repay the favour and be prepared to lend you money for a house. Showing a surplus income at the end of the month demonstrates you are in control of your finances and have spare capacity to increase your outgoings to cover new commitments such as a mortgage.
In most instances the lender is contributing the bulk of the money to purchase a house in the form of a mortgage, as such they take comfort that your personal input (be it 5%, 10% or more) is coming directly out of your own pocket as you would inevitably feel greater pain for the resultant loss in the event the mortgage defaulted and the property was repossessed.
– Undeterminable third party interest
If you are applying for a mortgage you will inevitability at some point have to sign a declaration form giving the lender permission to check up on your status. However, in the event of a ‘gift’ the lender is limited on the questions they can ask as they do not have a direct relationship with that person(s). Therefore to a large degree the lender takes a ‘leap of faith’, and for the majority of cases base their decision entirely on a ‘gifted deposit’ letter provided. {please note: Niche Advice has a number of helpful templates in this regard}.
Why does this leave the lender feeling low? Well if the third party can prove they have a financial interest in the property then they would need to be consulted in the event of the mortgage defaulting and it could ultimately stop them from taking possession.
– If the property is an investment
If the property to be purchased is a buy to let the use of a ‘gifted deposits’ is even more closely scrutinised by the lender. This is because in essence a buy to let is an ‘investment’. So if a third party is involved in the purchase it is reasonable for them to expect a return on their contribution. Just like in the case of all ‘gifted deposits’ the lender will seek confirmation from the third party that they do not wish to benefit from the property – however it is harder to see why they would want to do this unless they would? To put is another way it makes common sense that Parents would want to help their Child buy their first property and get their proverbial foot on the housing ladder – by contrast to help them buy their eighth buy to let – hmmm – it begs the scepticism!
Who can provide a ‘Gifted Deposit’ towards a mortgage?
Well the answer to the question is dependent on the individual lender. An experienced Mortgage Broker should have the answers to hand. To summarise there is a distinct pecking order:
| Likelihood of acceptance: | ||
|---|---|---|
| Deposit gifts: | from Parents | Most lenders |
| from Grand parents | Less etc | |
| from Brothers and Sisters | Less etc | |
| from Uncles and Aunts | Less etc | |
| from Extended family | Less etc | |
| from Friends | Hardly any lenders |
Can the ‘Gifted deposit’ towards a mortgage originate from Abroad?
Yes, but it is fair to caveat that with the fact the lender is more likely to be a UK bank with overseas exposure and the ability to carry out sophisticated Anti-Money Laundering (AML) techniques for international checks. As a generalisation this type of ‘gifted deposits’ therefore tends to rule out building societies.
The lender will often ask for the money to be transferred into a UK bank account prior to Mortgage Offer. They will further ask for a passport of the third party and a copy of the originating and destination bank account statements.
In also fair to say that certain countries are favoured by lenders.
Can you donor of the Gift place a charge on the property for repayment of the deposit from the proceeds of a future sale?
No, the lender would not view this as a true gift and would work on the basis that there is a ‘noted interest’ of an additional charge on the property in their underwriting assessment which would put the majority of lenders off, particularly if this charge was ahead of theirs in the pecking order in the event of a repossession.
For more information on Gifted Deposits for Mortgages please call us on T: 020 7993 2044 or alternatively complete the online Contact form on this website.
