Conveyancing, Gifted Deposits and the Gifted Deposit Letter
As house prices and living costs in the UK continue to skyrocket, saving up for a deposit is getting tougher and tougher. Today, half of first-time buyers are consequently securing properties with a gifted deposit from a loved one. However, there are protocols that must be followed when using a gifted deposit. This includes providing a gifted deposit letter in order to reassure your lender that the deposit was secured lawfully.
What is a Gifted Deposit Letter?
A gifted deposit letter is a signed letter from the donor clearly stating that the gifted deposit is intended as an unconditional gift that is not to be repaid. You will need to obtain a gifted deposit letter from your donor and submit it to your lender. It should include:
- The full name, contact details and address of the donor
- How much they have given (or intend to give) you
- Their relationship to you
- The address of the property being purchased
- Confirmation that the deposit is a gift and not to be paid back
- Confirmation from them that they do not have any right to the property nor beneficial interest in it – this is to prevent them from being able to claiming they have a right to your property in future.
- The date the document was signed.
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Why does it matter who has given me the gifted deposit?
The majority of gifted deposits tend to be given by parents to their child, usually without the expectation of repayment. Mortgage lenders are confident in gifted deposits from close relatives because they are more commonly given as gifts rather than loans – if a gifted deposit is given as a loan, the donor can make a claim against the buyer if they fail to repay which could have a knock-on effect on the buyer’s ability to repay their mortgage payment.
Conversely, gifted deposits from friends or distant relatives are more commonly given as loans, and lenders are less likely to accept them for this reason. A mortgage lender is also unlikely to accept a gifted deposit from the property’s seller, even if the seller is a close family member.
What else will I need to provide?
As well as a gifted deposit letter, you will need your donor to prove that they acquired the money they’re giving to you legally. This is because conveyancing solicitors and mortgage lenders both have a duty to prevent and stop money laundering wherever they can.
Different lenders have different requirements of what else they may ask for. Our conveyancing solicitors are on all of the following major mortgage lender panels and can advise you on meeting your lender’s requirements. At the time of publication, these were the gifted deposit requirements for the six major lenders:
Halifax Gifted Deposit
Halifax will require you to send to your conveyancing solicitor a gifted deposit letter dated within three months of completion. You may not use a deed of trust to protect part of your deposit.
Halifax do not accept gifted deposits from donors unrelated to the recipient (not including step-family, adopted children and cohabiting partners), or gifted deposits from family on buy-to-let properties if the vendor is related to the recipient.
Santander Gifted Deposit
Under certain circumstances, Santander may accept a gifted deposit from a friend. However, they will not accept a gifted deposit from anyone who will be living at the property but not be named on the mortgage.
Nationwide Gifted Deposit
Nationwide accept gifted deposits from anyone over the age of 18 as long as there are no conditions attached to the gift, meaning that the donor cannot claim any right or beneficial interest in the property and also does not expect to be repaid. However, if the LTV of the mortgage is 90% or more, a donor can only contribute a maximum of 25% towards the deposit – the other 75% must be supplied by the recipient.
For gifts over £10,000, they will require a completed gifted deposit form to be submitted.
HSBC Gifted Deposit
HSBC allow gifted deposits from family members on the condition that the gift is non-repayable and does not entitle the donor to any rights to the property.
NatWest Gifted Deposit
NatWest accept Gifted Deposits from anyone on the condition that the loan is non-repayable and the donor accepts they have no rights to the property.
If the gifted deposit is being given by the vendor, it will be considered an incentive by NatWest and this will reduce the amount NatWest are willing to loan.
Barclays Gifted Deposit
Barclays will accept a gifted deposit from a family member, as long as the gift is not repayable and the donor accepts they have no rights to the property.
Can I still get a mortgage if my gifted deposit was a loan?
It is possible, but more difficult to get a mortgage if your gifted deposit is a loan regardless of who is lending you the money. When considering your mortgage application, lenders will look at your expenditure and credit score to determine whether or not they can trust you to make repayments on time; if they see you have another debt, they are less likely to approve your application. Most major lenders do not accept loaned deposits.
If your gifted deposit has been given to you as a loan, you should speak to our sister company, Starck Uberoi Wealth, about finding a lender who will accept your application. Call us on 020 8037 4207 or email info@suwealth.co.uk.
Can I use a gifted deposit if I’m buying a property with someone else?
If you are buying a property with a partner or a friend, your donor may want some security knowing that you will still keep your gift in the event that you and your partner or friend separate. A deed of trust may be drawn up when the gift is given to confirm who the gift was given to, so that the recipient will retain their gift in the event of separation. However, not all lenders will allow this.
Will my gift be taxed?
In most cases, your gift will not be taxed. Individuals can give away up to £3,000 tax-free, with unused allowance being rolled over to the next year; this means that your donor could give you a tax-free gift of £9,000 if they haven’t given a monetary gift to anyone else over the past three years.
However, if the gift exceeds the giver’s total allowance, you may have to pay inheritance tax. This is because a monetary gift given within 7 years of the giver’s death will still be considered part of their estate, and thus a monetary gift from them will be considered an inheritance. The sooner the giver died after giving the gift, the more tax would need to be paid.
Is there another way I accept help from a loved one when purchasing a property?
Instead of a gifted deposit, you could take out a guarantor mortgage with your lender and instead have your loved one be a guarantor. If you fail to make your mortgage payments, your guarantor will make your payment for you instead. Your guarantor’s savings or property will be held as security for the loan.
You must make sure that your potential guarantor understands their commitment and is financially able to make mortgage payments for you if you default. If your home is repossessed and the sale doesn’t cover your debt, your guarantor will be liable to pay the rest of the debt. If your guarantor also fails to pay, they could lose their savings or their property depending on which was used as security.
Your loved one will need to seek independent legal advice before they can legally agree to be your guarantor. We can assist with this – read more about how we can help in our blog on Independent Legal Advice.
Alternatively, you and your donor could choose to take out a joint borrower, sole proprietor mortgage. This allows you and your donor to borrow, but only entitles you to the property.
How Starck Uberoi Can Help
We at Starck Uberoi have refined our fast conveyancing service through years of experience, and have been accredited by the CQS (Conveyancing Quality Scheme). Our conveyancing solicitors can provide a reliable and efficient conveyancing service to help you feel more confident taking your first step onto the property ladder.
For more information, please see the conveyancing page on our website. To book an appointment with one of our conveyancing solicitors, please call 020 8840 6640 or email solicitor@starckuberoi.co.uk.
We have solicitors in Brentford on the High Street in a grand three-story building, just a ten minute walk from Brentford Railway Station. Our solicitors in Richmond on Thames overlook the picturesque Richmond Green just a five 5 minute walk from Richmond train station. Our Belgravia solicitors are located in a prestige location in Grosvenor Gardens and our solicitors in Ealing Broadway are located close to the University of West London. Finally our Canterbury solicitors are located in the within the UNESCO World Heritage Site of Canterbury Cathedral.
Our partner, Raminder Singh Uberoi, can also provide a Notary Public service at any of our offices.
