Published 24 November 2014 · Last reviewed 25 February 2017 · Older article — see current rates
A guide on the different Mortgage rules on gifted properties from parents and family also known as gifted equity and using this gift as your main deposit
So you’re lucky enough to be a potential beneficiary a gifted property from your parents. The difficulty is your parents have a mortgage on the property and want this to be repaid as part of the gift. You in return will also like to use the gifted equity as your deposit.
Will lenders let me take over the mortgage from my parents?
Well firstly this is a purchase and as such stamp duty may be involved (but we can make suggestions on how to keep this to a minimum). Your parent’s lender would have underwritten the loan on your parent’s status so from a mortgage point of view it’s a case of starting from scratch.
Can my parents continue to live in the property?
The lenders’ initial question will be where are your parents going to live if this is current family home. Most lenders that operate in the ‘gifted equity’ market will expect them to move out. Why is this? Well for something to a ‘gift’ it must be just that a ‘gift without retaining any benefit’. That said at Niche Advice we have accessing to mortgage funding that would allow parents to continue to live in the property if they gift it to their children but this is very much the exception to the market.
I understand this is a purchase so will I still need to demonstrate I have a deposit or can I use the equity being gifted?
It depends on the lenders own policy. A small number will not need you to contribute at all and will apply their products based on the open market value which is likely to lead to better interest rates.
My parents want to gift the property to me as I have credit issues – is that ok?
I am afraid it’s highly unlikely we will be able to help but it’s still worth a conversation as adverse credit is a pretty big area and we will need full details of your circumstances, and sometimes there are ways of achieving the objective that are not obviously apparent.
The property my parents want to gift is and will remain a buy to let – does this complicate matters?
‘Gifted equity’ mortgage solutions are available for residentials and buy to lets. In the case of a buy to let the lender will need to be convinced that you do not intent to live there – the most plausible reason for this would be if you are already a homeowner of a larger property.
To conclude ‘gifts of equity’ is complex where a mortgage is involved and finding the right lender very time consuming, so why enlist the services of reputable mortgage broker, such as Niche Advice who do not charge a penny until you have the keys to the door.