Gifted Deposit & Gifted Equity Mortgages
Buying a house with a gifted deposit or gifted equity? Lots of mortgages exist! Whether it's from friends, family or even a landlord, find out how to get one today!
Firstly, are you using 'Gifted funds' to fund part or all of your deposit?
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Author: Pete Mugleston - Mortgage Expert, MD
Updated: March 17, 2022
Saving enough money to buy a property can be a long process but a gifted deposit can fast track you onto the path of home ownership while opening up the possibility of better mortgage rates and terms.
This guide will detail the different types of gifted deposits available, what they might mean for your mortgage application process, and how lenders feel about them.
The following topics are covered below...
What is a gifted deposit?
A gifted deposit is a “no-strings-attached” amount of money or equity that’s given by one person to another with the purpose of serving as a partial or whole down payment on a property.
It can allow you to get on the property ladder quicker than anticipated or to put down a bigger amount upfront.
Most lenders ask for at least 5% of a property’s total value to put down as a deposit but the more you can give, the less you need to borrow. That, in turn, means access to more competitive mortgage rates.
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There are numerous types of gifted deposits available.
These are the most common, usually coming as a lump sum from parents but other family members – grandparents and siblings – can gift too.
Some lenders, however, won’t allow a gifted deposit from more distant relatives, like aunts or cousins, and others only approve those from blood relatives.
Lenders view this scenario with more caution as it’s harder to prove it’s a true gift.
This opens up the possibility of the friend wanting the money back in the future, leaving the borrower in financial uncertainty.
Such concerns mean the pool of lenders for those with a friend-gifted deposit is smaller but an experienced broker would be able to identify lenders who do accept such circumstances.
Gifted equity deposits
Rather than offering money, a vendor, landlord, family member or developer might offer equity in what’s called a concessionary purchase. This is when they offer to sell you a property for less than its market value.
The difference between the value and what the asking price can then be classed as a deposit.
Some lenders don’t accept gifted equity mortgages because they view the property’s value as the agreed purchase price and require a deposit that’s a percentage of that value.
Those that are open to such an arrangement usually cap the amount that can be gifted to 5% or 10% of the valuation.
Types of gifted equity deposits include:
If the seller of the property you’re looking to buy wants a quick sale, they might suggest a discounted purchase price.
For example, if you’re purchasing a house valued at £250,000 and the vendor asks for £225,000, the £25,000 you’re saving can be put toward the deposit.
Only a small selection of lenders are willing to accept this arrangement and they’ll want to know why the vendor wants to sell quickly and whether the property valuation is accurate.
If you’re purchasing a new build property, the builder or developer might offer to cover the deposit via a discount off of the purchase price as an incentive.
Lenders will again be cautious, especially as new build properties are considered a little riskier due to the fact they often reduce in value once the property becomes lived in and loses its ‘new home’ premium.
If you opt to buy the house you’re renting, and the landlord is eager for it to be finalised quickly, they might offer a discount.
If it’s over 5% of the value, then it’s likely to be classed as a deposit.
Not all lenders like this option and some will only offer a mortgage with this arrangement if it meets certain criteria.
In this case, rather than a family member offering cash to cover the deposit, they sell you a property at a reduced rate.
Given the family connection, most lenders are more amenable and will accept the discount as a down payment.
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How a broker can help
With a gifted deposit, lenders will have more questions surrounding the source of the deposit, so there can be more documentation and it can be harder to calculate your mortgage affordability.
This is why having on-demand, personalised support is paramount. Many of the brokers we work with have expertise in applying for mortgages with gifted deposits and can help get you a better deal than perhaps you would alone.
They will also be able to:
- Advise on what issues potential lenders might have with your gifted deposit.
- Compare the whole market to find a lender, and rate, amenable to your gifted deposit.
- Help in submitting the mortgage application.
If buying a property with a gifted deposit, get in touch for a free consultation with one of our specialist advisors. Call 0808 189 0463 or make an enquiry.
Using a gifted deposit
If you’re lucky enough to have been gifted a deposit, here’s how to move forward with a mortgage application.
- Verify that the deposit is indeed a gift. It’s important to clarify with the gifter that no repayment is expected. If it is, that makes the gift a loan and this can impact your mortgage affordability. To make sure everyone understands the nature of the deposit, lenders will ask both parties to sign documentation agreeing that the deposit doesn’t need to be paid back and that the donor owns no stake in the home.
- Consult a broker. Some lenders have certain requirements when it comes to a gifted deposit: the percentage that’s being gifted, who is doing the gifting and where their money has come from. Working with an experienced broker will ensure you apply to a lender that’s open to gifted deposits.
- Submit a mortgage application. Lenders will be looking at your earnings and spending habits as well as your credit history and any existing debt to ascertain how much you can afford to borrow. With a gifted deposit, given it isn’t made up of your own savings, they’ll be looking more closely to make sure you’ll be able to make the repayments.
Working out your loan-to-value (LTV)
Once you know how much deposit you’re being gifted you can use our calculator to work out how much your LTV will be for the property price range you’re looking at.
The higher the deposit, the lower the LTV will be and the better chance you have of qualifying for the most competitive interest rate deals.
This calculator will tell you what your loan-to-value (LTV) ratio is, based on the property's value, your deposit/equity and the amount you're borrowing.
Your LTV is
This means that most mortgage providers will consider your deposit amount to be more than satisfactory, but speaking to a broker is still recommended to ensure you get the best deal.
This means you’re likely to meet the deposit requirements at most lenders, but since many reserve their best rates for those with higher deposits, speaking to a broker is recommended.
Many mainstream mortgage providers would consider this high and be reluctant to lend. Applying through a mortgage broker may be necessary to find a specialist low deposit mortgage lender.
LTVs have a direct impact on the rates available to you - speak to a mortgage broker and find out how to get the best deal based on your ratio.
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Other factors to consider
Here are some other things you should bear in mind if you’re applying for a mortgage with a gifted deposit…
- Contributing to the gifted deposit. Lenders view an application more favourably if you have contributed to the deposit as it shows you’re also investing in the property transaction. In fact, some won’t approve a mortgage unless you have. So even if you’ve been gifted enough to cover the whole deposit, it’s worth considering if you can add to it so that you have access to more competitive rates.
- Making all parties aware of the gifted deposit. You might think that as long as you’ve got a deposit it shouldn’t matter where it came from but your lender, broker and solicitor need to know the nature of the deposit. Being upfront early in the process can prevent any setbacks or lost time in the mortgage application process.
- Having proof of funds from the donor. A lender will also want to know how the donor came by the money to ensure it isn’t associated with fraud or money laundering. If it’s from the sale of a property then the paperwork around that would have to be presented. If it’s from savings, bank statements will be required.
Schedule a free consultation with a specialist gifted-deposit mortgage advisor
If you’ve been gifted a deposit or think you might be, the best thing to do is to connect to a broker specialising in this space to find out what that means for you.
Our broker service can match you to an advisor specialising in gifted deposits so they can find the best lender, rates and terms out there.
Make an enquiry or give us a call on 0808 189 0463 today for a free, no-obligation consultation.
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Maximise your chance of approval with specialist advice from a mortgage expert.
There’s no limit on how much a person can give or receive but anything over £3,000 per year can be subject to inheritance tax if the giftee passes away within seven years.
Some lenders will also stipulate that only a certain percentage of a deposit can be gifted.
A solicitor can put a declaration of trust together stating that the money is solely being gifted to one person.
This means that, should a couple part ways, only the named giftee would be entitled to the amount.
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Mortgage Expert, MD
About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!