With the average first home in the UK now costing roughly £311,034, it’s no surprise that many buyers are turning to relatives for support. While the term ‘Bank of Mum and Dad’ is often used tongue-in-cheek, it reflects a growing reality. As deposits climb to an average of £61,090 and the typical first-time buyer is now aged 33, gifted deposits from parents and relatives are playing a positive, and often crucial, role in helping the next generation onto the property ladder.
In this blog, we’ll take a look at what you need to know when using a gifted deposit and the steps to take to avoid delaying the conveyancing process.
What is a Gifted Deposit?
To put it simply, a gifted deposit is money given by a relative, which is used towards part, or all, of a mortgage deposit. Whereas many lenders now accept smaller deposits, if a gift is able to take your deposit from 5% to 10%, this will decrease your monthly repayments.
As the name suggests, this money has to be a genuine gift with no expectation of being paid back to the relative. In fact, legally, the person making the gift will need to sign a letter declaring that the funds are non-repayable, they will not be taking an interest in the property and they will not be living at the property. We’ll come back to this declaration later on.
There is no immediate tax liability on a gifted deposit. However, if the donor were to pass away within seven years of making the gift, the amount may be considered as part of their estate for Inheritance Tax purposes. Whether tax is payable will depend on the total value of the estate. Our Private Client team can provide tailored advice based on your specific circumstances.
Who Can Gift Money for a House Deposit?
In many cases, parents, grandparents and immediate family members can gift deposits. If money is being gifted by a friend or distant family member, it may be accepted, although it can complicate the application. Most lenders will need to approve a gift that is not coming from a family member.
Having said this, every mortgage lender has varying policies, so it is always advised to check with them early in the process before proceeding. Where the source of the deposit is identified as being a crypto-asset such as Bitcoin the lender will need to approve this.
What Qualifies as a Gifted Deposit?
There is no upper limit to a gifted deposit, in fact, your entire deposit can be completely gifted. However, this may lead lenders to be more cautious, and this could raise concerns about the buyers financial dependability. Other lenders may require further proof of funds so it is always best to check before proceeding.
How to Declare a Gifted Deposit
When making your mortgage application your mortgage adviser will need to compile evidence of where the source of the deposit is coming from. The broker usually asks the person making the gift to sign their precedent gift letter. Even though the lender may already know about the gift we still need send the donor a formal letter so they can declare the gifted deposit and the amount being gifted. We usually also act for the lender and we will need comply with the Lenders Handbook Lenders’ Handbook – UK Finance Mortgage Lenders’ Handbook We can provide guidance on all of the information we need included in this letter, as well as other forms of identification we will need to carry out a thorough conveyancing process.
Our knowledgeable team will verify the gift and carry out any necessary due diligence on each party. Once carried out, we will prepare and review the gifted deposit declaration and lastly, communicate with your chosen lender if required to ensure compliance.
Do Solicitors Charge for Handling Gifted Deposits?
To comply with our regulator the SRA we need to be transparent with our fees. At Clapham & Collinge LLP we do not charge any extra fee ‘add on’ for dealing with gifted deposits unlike many firms. When you are obtaining quotes from other firms it is important that you check if an extra fee will be added for dealing with a gift.
We will of course have to carryout identity checks against the person providing the gift so there will be a small ID fee as we have strict compliance checks to meet anti-money laundering (AML) regulations.
What does the Solicitor look at?
Your solicitor will be responsible for:
- Verifying the source of the gifted funds
- Reviewing or drafting a gifted deposit declaration
- Conducting identity and financial checks on the donor
- Liaising with the mortgage lender to confirm the gift meets their criteria
These steps are essential to ensure your transaction is legally sound, your mortgage offer isn’t delayed, and everything runs as smoothly as possible.
What are the Common Mistakes or Delays Involving a Gifted Deposit?
Delays or issues with gifted deposits often arise when either the conveyancer or the mortgage lender is not informed early that part (or all) of the deposit is being gifted. Early disclosure helps prevent delays and ensures compliance with anti-money laundering regulations, which we have explained in more detail below.
Our Advice to You
With the recent tightening of the UK’s anti-money laundering (AML) regulations, gifted deposits are now subject to greater scrutiny. It is essential that you inform your solicitor and lender as early as possible and provide the required proof of funds and gift declaration at the outset of the process.
Failing to do so can lead to:
- Delays in the mortgage offer being issued
- Last-minute legal complications
- The transaction being flagged for further checks, or even paused
To help ensure a smooth transaction, we recommend starting the mortgage application process as early as possible. Maintaining clear records of the gifted funds and ensuring open communication between all parties involved can significantly reduce the risk of delays and unnecessary stress.
Whether you’re buying, selling, investing, or letting a property, our Conveyancing experts are on hand to help guide you through the process. Contact us today:
Norwich
Tel: 01603 693500
Sheringham
Tel: 01263 823398
North Walsham
Tel: 01692 660230