Gifted deposits: how do they work?
So, you’re looking to buy your first property. You’ve been renting for a few years now and you haven’t been able to put enough money aside for a deposit. You’re frustrated because you know that most monthly mortgage payments seldom differ greatly to the current monthly rent payment you’ve been making for years but without a deposit - you’re stuck. If any of that sounds in any way familiar, then this article is for you.
All is not lost. Aside from the various government schemes available to first-time buyers, gifted deposits are a great way to get a helping hand when it comes to getting onto the property ladder. A gifted deposit is a sum of money given to a close family member as a deposit on a home and is an increasingly popular method for first-time buyers trying to raise funds. If you’re not too keen on the idea of a high Loan to Value mortgage and would rather start the process with a larger deposit, then having one gifted can go a long way in helping you cross that bridge. There are varying rules and regulations surrounding gifted deposits depending on the lender and of course it all depends on whether or not you have a family member ready and willing to offer a helping hand – but if your situation ticks those boxes, where would you start?
What to do when you’ve been gifted a deposit.
For starters, most lenders will require proof that the deposit is indeed intended as a gift – this will normally be in the form of a written document signed by both the donor and recipient that confirms there is no expectation for the money to be repaid in any capacity. Some lenders will also ask you to provide proof that the donor does not expect any legal right to the property at any time. The good news if you are looking to take advantage of a gifted deposit is that the donor is able to gift as much or as little as they choose. Unlike standard gifting of monies, gifted deposits do not have a legal limit and therefore a deposit for a house could be gifted in its entirety.
Currently, the average age of a first-time buyer is 30, so gifted deposits are a great way to bring that average down.
Things to consider.
Of course, there are some government regulations surrounding gifted deposits. Arguably the main law to consider involves inheritance tax. In many cases, a deposit is gifted from an older relative like a grandparent. UK law states that if the donor of a gifted deposit were to pass away within 7 years of the transaction then the recipient is legally required to pay inheritance tax on the full amount. Obviously, this doesn’t have to be a huge red flag, but it is certainly worth considering before accepting any potential gifted deposit.
Although gifted deposits won’t be available to everyone and largely depend on circumstance, they’re an excellent way of making those first steps into the world of property ownership. If you are a first-time buyer with the possibility of a gifted deposit on the horizon, it’s definitely an option worth considering.
If you’d like to discuss the options available to you, contact your adviser today.