What is a gifted deposit?

Taking the first step in buying a property is often a scary but exciting moment. There can be lots of worries and questions.

One of the main worries is how to fund a purchase, particularly if it is the first time. Often saving the funds towards a purchase to demonstrate to the lender that you are a good prospect  for a mortgage can be extremely difficult and can be the factor that prevents people from taking the step to owning their own property.

Members of the family may want to step in and help with the purchase of a property by gifting money to ensure that the purchase becomes affordable and this is known a a ‘gifted deposit’.

In most cases where gifted deposits arise, it is a simple case of a family attempting to help the next generation buy their first property, or parents helping following a divorce, and in these situations it is very rare that there will be any issues.

Money can be gifted to the purchaser of a property either before the purchase, on exchange of contracts or even on completion but with any gift of money, there are a few legal points that need to be considered.

Certain checks must be made to ensure that the gift is being made correctly, and that the gifter has sought independent legal advice in relation to gifted deposit being made before the property transaction completes

Your conveyancer will need to  confirm that the gift is not an attempt to clean proceeds of crime. This is easily checked by examining the gifter’s bank statements which will show over a period of time how the money accrued.  When the funds are transferred there will be a record in the gifter’s bank records and a corresponding record in the recipients bank records. It is important for the gifter to give the conveyancer proof of identity as part of these checks. We may carry out these checks using the Thirdfort App.

It is important to establish that a gifted deposit is, in fact, a gift, with no repayment expected. A lender will generally not be willing to accept another loan on a property of this kind, especially if it could be considered a second mortgage or charge. A lender often requires a written notice confirming that no repayment will need to be made by the purchaser with regards to the gifted deposit. At Hannays, this is done as part of our initial purchase information form and is signed by the gifter.

No rights or controls over the property can be expected by a gifter after the property is purchase. If a gifter intends to make the gift repayable, then is not a ‘gifted deposit’, and a mortgage lender will be unwilling to enter this arrangement.

We hope that this short article has helped with understanding gifted deposits, but if you are purchasing a property and need any further advice on the process of utilising a gifted deposit please don’t hesitate to contact your conveyancer on 0191 4555361 or email info@hannayslaw.co.uk