A gifted deposit is a sum of money or equity given to you by a third party as a deposit on a property.
Gifted Deposit Mortgages are available on:
- Residential purchase
- Personal buy-to-let purchase
- Limited company/SPV buy-to-let purchase
Whilst gifted deposit mortgages might appear simple, lenders all have different criteria so it pays to shop around. Fortunately, we are specialists in this field so we are able to help you choose the best mortgage for your circumstances.
Examples of How Gifted Equity Can be Used
- Parents are downsizing or moving abroad and the offspring will buy as their main residence - additional funds can be possibly raised up to 95% of the value of the property.*
- Parents are finding the property too big or difficult to maintain - the offspring buys the property from the parents as their main residence and the parents remain in the property. Additional funds can be raised up to 95% of the value of the property.
- The parents mortgage is coming to the end of its term, the parents wish to remain in the home but the offspring already has a main residence and will not be moving in - you can obtain a "mortgage for a dependent relative", the offspring will have to evidence they have sufficient income to afford their existing mortgage and mortgage on parents property.
- Parents are downsizing or moving abroad and the offspring will purchase the property as a buy to let - additional funds can be raised up to 85% of the value of the property.#
- Parents own an existing buy to let or portfolio which they want to gift to their offspring - additional funds can be raised up to 85% of the value of the property.#
The buy to let properties can either purchased from the parents on a personal or direct into a Ltd Company/Special Purpose Vehicle (SPV).
*subjecting to matching residential lending criteria
#subject to matching buy to let lending criteria
There are 5 major factors that affect lender and rate.
- Whether or not you’re a first-time buyer
- Relationship to the individual gifting the deposit/equity
- Minimum levels of income
- Parents remaining in the property
- What are the five options for gifted deposit mortgages and how do they differ?
1. Gifted Cash Deposit
If you are able to gift whole or part of a deposit to enable your son or daughter to obtain a mortgage, the majority of lenders will accept this on the condition that you sign a ‘deed of gift’ letter to confirm that the funds are a gift and not repayable.
The disadvantage to you, the parents, is that you will have lost control of the deposit money, meaning that you may possibly only be able to help one child. A second issue is that, if your son or daughter is in a relationship which later breaks down, this could lead to a dispute on returning the deposit.
We know lenders who will accept deed of trust which allows the parents to put a charge on the property and therefore can receive their gift back upon sale of the property.
However other lenders feel this contradicts the idea that the money is a 'gift'
I would always recommend that you take independent legal advice to protect both parties before gifting a deposit in these circumstances.
2. Genuine Sale below Open Market Value - Landlord to Tenant
Depending on how long you have rented the property from your landlord, there are two lenders who will consider you purchasing the property from your landlord at a reduced price: Halifax and Nationwide.
For example, if the property is worth £200,000 and the landlord is willing to sell for £180,000.
The difference of £20,000 would be treated as the deposit.
The minimum gift required is 10%.
In this case, no physical money passes hands as the gift is in the form of equity and you won’t need to fund any deposit.
3. Inter-Family Sale & Gifted Equity
Also known as a concessionary purchase.
It could be that you’ve offered to sell a property to your son or daughter at below current market value. With an inter-family sale, the equity in the property is treated as the deposit and no further funds are required.
Nationwide, Halifax, Kent Reliance, NatWest, Santander, Coventry Building Society, Godiva Mortgages, Aldermore
There are certain lenders who are willing to accept gifted equity from family members who are not the parents, e.g.an aunt or uncle.
Some lenders now accept gifted deposits from a wider range of family/relatives (Family Law act definition, 1966) which include;
- A first cousin of the person or person's spouse
- Former spouse
- Civil partner
- Former civil partner
Certain lenders are comfortable with the stamp duty being based on the borrowing rather than the market value.
4. Deposit secured as a second charge on parents’ property
Two lenders - Bath Building Society and Aldermore – offer a scheme where they will advance up to 100% of the purchase price of your son or daughter’s chosen property; they reduce the risk of this by taking a 25% second charge on your property. The advantage to you, the parents, is that you do not have to fund deposit money from your savings and do not make any monthly payments. The disadvantage is that if your son or daughter default on their mortgage, your home is at risk.
5. Retained Deposit
This option is offered by a number of lenders. The most recently launched is the Woolwich Family Springboard Mortgage. A 5% deposit is funded by the purchasers. An additional 10% is deposited into a Woolwich savings account by parents or grandparents. These funds cannot be accessed for three years but earn interest. After the three years, there is no restriction on these funds.
The benefit of this route is that, as the parents or grandparents, you only lose access to your savings for three years and they can be used again to help another son or daughter.
Solicitors and Stamp Duty
We can recommend solicitors practices who understand the implications of gifted equity deposits and the lender's requirements. In the majority of cases, stamp duty is paid on borrowing not the open market value.
Why use Neil Soundy Financial Services for your mortgage advice?
"Neil made light work of our complicated gifted equity mortgage. He is absolutely fantastic and I honestly do not think we could have arranged this mortgage without his expertise. He was there every step of the way and we will most certainly use his services for any future remortgage/purchase. Thank you, Neil!"
"We are so pleased Jake was recommended to us. The gifted mortgage application was made so much easier with such sound advice and regular support."
Darren & Jackie
"Thank you so much for your wonderful and efficient service. We had a complicated situation with a gifted equity deposit purchasing from a family member, combined with me recently starting a new job! Neil succeeded quickly where others failed at the first hurdle - well done and thank you so much x"
"We were having terrible trouble trying to find a gifted equity mortgage for our new home. With only one, very expensive offer on the table, we were on the verge of giving up. Then we spoke to Neil and everything fell into place. He made it sound so easy and gave us so many options that we were convinced there must be a catch or that he had misunderstood our needs. Jake took over on the application process and within about 3 weeks we had a confirmed mortgage offer. Both Neil and Jake were friendly, knowledgeable, efficient and professional throughout. They were always available when we phoned and I would strongly recommend them to anybody. Thank you for making our dream move possible."
Neil Soundy Financial Services Ltd is an appointed representative of HL Partnership Ltd which is authorised and regulated by the Financial Services Authority.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
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