In this article, I will look at the options for gifting the family home or buy to let property and the factors that will affect the choice of lender and mortgage product.
Gifted Equity
There is a huge difference between gifting a deposit compared to gifting equity. Where the parents are gifting or helping to fund a cash deposit for a sibling almost all lenders can be approached. The parents will need to supply a letter stating it is a gift, non-repayable and no financial interest in the property being purchased.
Where the parents are gifting equity there is far less choice of lenders. Gifted equity means that the difference between the value of the property and the amount required by the parents is treated as a full deposit and no savings from the siblings are required.
| Value of property | £300,000 |
| Cash required by parents | £240,000 |
| Gifted equity | £45,000 |
This will be treated as a 15% deposit by the lender and no further deposit required.
Where we have arranged mortgages previously most parents will need enough to clear their existing borrowing. Additional funds can be applied for by the siblings to cover legal costs, stamp duty, home improvements or debt consolidation.
To gift a family home or buy to let they must be a blood relation. E.g. parent to a sibling is acceptable to all lenders accepting gifted equity. However, should the relationship be more distant, the choice of lenders will become further reduced?
Other options on Gifted Equity Deposit
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- If siblings own their own main residence the gifted property can be purchased as a buy to let. On this basis, there will need to be 25% equity and the projected rental to match lenders criteria.
- The parents can also gift existing Buy to Let properties. Again there will need to be 25% gifted equity.
Other factors affecting gifted equity choice of lender
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- Parents to remain at property
- First Time Buyer and First Time Landlord
- Stamp Duty: Some lenders require stamp duty paid on the open market valuation others on the amount borrowed. A solicitor who has experience working in this area is a great benefit. We can make recommendations in this area.
- The major players in gifted equity deposit are Coventry, Halifax, Virgin, Skipton and NatWest.
- There are more specialist lenders like Kent Reliance who consider EX-PAT and HMO gifted equity.
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Why Use Neil Soundy Financial Services For Your Mortgage Advice?
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- We are experts in SPV / Ltd Co lending.
- Your initial consultation is free with no obligation
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How Much Will It Cost Me For Your Advice?
A fee of £495 is payable on completion of the mortgage and Neil Soundy Financial Services Ltd will keep the commission received from the lender for arranging the mortgage.
Neil Soundy Financial Services Ltd is an appointed representative of HL Partnership Ltd which is authorised and regulated by the Financial Services Authority.
The Financial Conduct Authority does not regulate some forms of buy-to-lets.
We do not give or imply legal or taxation advice. We recommend you contact a solicitor or accountant for advice in these areas.
Think carefully before securing other debts against your home/property. Your home/property may be repossessed if you do not keep up repayments on your mortgage.
