Gifted deposits explained

Receiving a gifted deposit from family or friends can be the extra boost needed to make your homebuying dreams a reality. With rising prices, these types of deposits are becoming more and more common for securing mortgage approvals.

We know that gifted deposits can seem confusing, but we’re about to break it all down for you:

What is a gifted deposit?

A gifted deposit is money given to you by close family or friends to help cover the purchase price of the property. It’s one of the most generous gifts someone can give.

The funds are simply gifted with no strings attached – it is not a loan that needs repaying. The gift money may come from the donor’s savings, or they may even tap into their home equity if they want to help even more.

Gifted deposits can feel like a lifesaver when trying to buy your first home. Having that financial gift from family or friends is incredibly generous, it can help you borrow more and broaden your purchase options. However, processes need to be followed, it’s not as simple as just transferring cash from one account to another.

A guide for first-time buyers. 

Can the deposit be loaned instead of gifted?

We know it can get a little confusing figuring out the difference between gifted and loaned deposits from the lender’s perspective. The main thing to understand is that lenders see these two types of help very differently.

With a gifted deposit, the money is yours to keep – no strings attached. The gift doesn’t affect the lender’s view of what you can afford for repayments.

A loaned deposit is seen as more of a commitment. The lender may accept a loaned deposit if there’s a signed agreement saying you only need to pay it back when you sell the property. Otherwise, they’ll count those loan repayment amounts when reviewing your financial situation and mortgage affordability, which won’t be favourable.

Do I need to declare a gifted deposit?

We know paperwork isn’t anyone’s favourite, but it’s important to declare any gifted deposit you receive for your mortgage. Being upfront avoids headaches down the road.

You’ll need to inform both your lender and conveyancer/solicitor about the gift. Lenders want to make sure there’s no hidden debt or loans involved. They need to confirm the money is truly a no-strings attached gift to you, and where that money is coming from.

What other paperwork might I need?

What is a gifted deposit letter?

The good news is that most lenders will provide a simple template letter to confirm your gifted deposit. The gift-giver needs to fill it out with some basic personal details, the gift amount and it needs to state the money is non-refundable with no property rights attached.

As part of anti-money laundering procedures, the gift-giver will also need to provide ID, proof of address, and bank statements to your conveyancer to show exactly where the money is coming from.

What is a conveyancer and what do they do?

Pros of gifted deposits

Getting a financial boost through a gifted deposit can be a real game-changer when buying your first home. We want you to know the main pros so you can see how this type of help from family or friends could benefit you:

• It allows you to achieve homeownership sooner rather than spending years saving on your own. A gifted deposit gives your goals a jump start. 
• More deposit money means more options to work within your price range. You’ll have greater flexibility when finding a home you love.
• Bigger deposits mean lower monthly mortgage repayments and less interest paid over the life of the loan. More savings for you. 
• Legally, gifted deposits come with no strings attached between the giver and the recipient. 

While not feasible for everyone, gifted deposits can be a huge help in purchasing property, especially for a first home.

Cons of a gifted deposit

While the upsides usually outweigh the downsides, let’s chat about a couple of potential considerations so you can make the most informed choice: 

• Relying on family for help may unintentionally create some sense of obligation or pressure. If money issues later arise for the gift-giver, it could cause friction. But with proper legal work, the gift is irrecoverable. 
• There could be inheritance tax implications if the gift giver passes away within 7 years of giving the deposit. Something to keep in mind, but more on that later. 
• If buying with someone and the gift money is from your family, consider a deed of trust. This ensures you get the gift amount back if the property is later sold.

Other than those possibilities, gifted deposits really don’t have many downsides. You could see the extra documentation as a hassle but it’s simply due diligence to protect all parties legally.

Is there a limit on how much can be gifted?

The good news is that most lenders don’t set hard limits on how much deposit money can be gifted, but it never hurts to touch base with your preferred lender first, just be sure and avoid any unwanted surprises.

Alternatives to gifted deposits

We know that not everyone has the option to get a gifted deposit. Saving up on your own can be so tough. But there are still options out there that might help you get on the property ladder a little quicker: 

Guarantor mortgages

With these, a family member or close friend agrees to cover the payments if you can’t. The guarantor isn’t on the property deed – they just provide a financial safety net. They may need to put up their own home or savings as collateral. 

It’s a big commitment for the guarantor. But it opens doors for those who are struggling to qualify on their own.

Joint mortgages

Here you buy a home with someone else, simple as that. It could be a partner, friend, or relative. You co-own the property and can both contribute to the mortgage payments. Since lenders look at your combined income, you may qualify to borrow more together than solo. 

A joint mortgage lets you save for a deposit faster as a team. Just be mindful, that even as joint owners, the bank may require either or both of you to make the full mortgage payment if one can no longer afford it.

While saving up for that first home can feel like a lonely trek at times, know that you have options. Whether through generous family gifts, finding a co-buyer, or alternative financing, you will make it there. Stay focused on your goal, get creative if needed, and don’t be afraid to ask loved ones for help.

Frequently asked questions

What is a giftor and who can be one?

A giftor is someone who provides a financial gift to help you purchase a property. Typically, giftors are close family members or friends who want to support your homebuying journey. Gifted deposits are not a loan, whoever gifts you a deposit is offering it generously with no strings attached, they don’t expect repayment and retain zero rights or interest in the property you are buying.

Common giftors include parents, grandparents, or siblings. Some lenders may restrict where your gifted funds come from, so it’s best to check first with your lender.

What is a gifted deposit letter?

A gifted deposit letter is a document that confirms the details of your gifted deposit to your mortgage lender. It’s an important piece of paperwork that most lenders require. The gifted deposit letter typically includes:

• The giftor’s personal details
• The gift amount
• A statement confirming the money is a non-refundable gift
• Confirmation that the giftor has no rights to the property

Typically, lenders provide a template for this letter that the giftor simply needs to fill out and sign. They’ll also need to provide ID, proof of address, and bank statements to show where the money is coming from (proof of funds).

Can I use a gifted deposit as a first-time buyer?

Absolutely! Gifted deposits are particularly common and helpful for first-time buyers. With rising house prices, many struggle to save enough for a deposit on their own. A gifted deposit can make the difference between getting on the property ladder and not.

As a first-time buyer, you can use a gifted deposit to boost your savings, potentially accessing better mortgage rates and more property options.

Just remember to be transparent with your lender about the gift and follow their specific requirements. They’ll want to ensure the money is truly a gift and not a loan in disguise.

Why is a bigger deposit better?

A bigger deposit brings several advantages when buying a home. First, it reduces the amount you need to borrow, leading to lower monthly mortgage repayments, making homeownership more affordable.

Secondly, a larger deposit often unlocks better mortgage deals with lower interest rates. Lenders will view you as a lower risk, so more likely to offer you favourable terms.

A bigger deposit will also give you more options in the property market. You might be able to afford a pricier home or have a wider choice from your budget.

What is the process for gifted deposits?

The process for gifted deposits typically involves three key steps:

1. Confirm the gift with a deposit letter: As mentioned earlier, the giftor needs to fill out and sign a gifted deposit letter, stating the amount and confirming it’s a non-refundable gift with no string attached,
2. Complete ID checks for the giftor: To satisfy anti-money laundering regulations, the giftor must provide identification and proof of address.
3. Get proof of funds: The giftor needs to supply bank statements or other documentation showing where the gifted money is coming from.

Remember to inform both your mortgage lender and conveyancer about the gift as early as possible. They’ll guide you through any specific requirements they may have.