The Common Problems With Gifted Deposits

With property prices in Norfolk continuing to rise, gifted deposits are becoming an increasingly common way for first-time buyers to get a foot on the property ladder.

Whether it's parents, grandparents or other family members contributing to a deposit, it can make all the difference when saving independently feels out of reach.

While a gifted deposit can be a genuinely transformative help, it does come with its own set of legal and practical considerations. If these aren't handled correctly, they can cause delays, and in some cases, put the entire purchase at risk. The good news is that with the right legal support in place from the outset, most issues can be anticipated and resolved before they become a problem.

In this article, we walk through some of the most common gifted deposit problems we see, so that whether you're gifting or receiving a deposit, you can stay ahead of potential complications.

The most common issues with gifted deposits

Here are the issues we most commonly encounter, so you can be prepared if you are gifting or receiving a deposit.

The gift is treated as a loan

For a gifted deposit to be accepted by a mortgage lender, it must be clear that the money is a gift with absolutely no expectation of repayment. If there is any ambiguity, or if it later emerges that repayment was expected, it can lead to serious consequences including affordability reassessments, amendments to the mortgage offer or, in the most serious cases, allegations of mortgage fraud.

It is essential that both the donor and the buyer are clear on this distinction from the outset, and that the gifted deposit letter reflects it accurately.

The donor can't prove the source of funds

Solicitors are legally required to carry out anti-money laundering checks on all funds involved in a property transaction, and that includes gifted deposits. If the donor cannot evidence where the money has come from, the funds simply cannot be used.

Evidence typically required includes bank statements and savings history showing how the funds have accumulated over time. A lack of this documentation is one of the most common causes of delay we see, and it can catch families off guard. Getting this paperwork together early is one of the simplest ways to keep your transaction on track.

The gift affects the donor's own financial situation

If a donor later experiences financial difficulties and is made bankrupt, a court may have the power to reclaim gifts made within a certain period prior to that bankruptcy. This is not something most families think about when making a generous gesture, but it is something solicitors are obliged to consider.

This is where a Declaration of Solvency becomes important. This is a signed statement, witnessed by a solicitor, confirming that the donor is financially stable and is able to make the gift without compromising their own position. It provides an important layer of protection for everyone involved.

The lender doesn't accept gifted deposits from certain sources

Not all mortgage lenders accept gifted deposits from all sources. Some will only accept gifts from immediate family members, while others have restrictions on the relationship between donor and buyer. If this isn't checked before the mortgage application is submitted, it can result in delays or even a declined application.

We always recommend confirming with your mortgage broker or lender that a gifted deposit will be accepted, and from whom, before any formal steps are taken.

The timing of the transfer causes problems

When a gifted deposit is transferred can be just as important as the amount itself. Funds arriving too early can complicate the money laundering checks your solicitor needs to carry out; funds arriving too late can delay exchange or push back completion.

Your solicitor will advise you on the right timing for your specific transaction.

The deposit is part gift, part savings

When a deposit comes from two sources, part gifted, part saved, both need to be evidenced and verified separately. A signed gifted deposit letter will be required for the gifted portion along with the donors bank statements, and bank statements will be needed to evidence the buyer's own savings alongside it.

This is entirely manageable, but it does mean additional paperwork and a little more time. It's worth flagging this to your solicitor at the earliest opportunity so it does not hold up the process. 

Gifted deposit delays can affect the whole chain

It's worth remembering that in a property chain, delays don't just affect the buyer. If gifted deposit paperwork isn't in order, it can hold up every transaction linked to that purchase, which can frustrate other parties in the chain and, in some cases, lead to them reconsidering their position.

What the donor needs to provide

To help the process run as smoothly as possible, the person making the gift will typically need to provide the following:

• A signed gifted deposit letter confirming the gift is non-repayable and that the donor will have no financial interest in the property
• Proof of identity and address
• Bank statements showing the source of funds and how the funds have accumulated
• A Declaration of Solvency where required
• Confirmation of their relationship to the buyer

Your solicitor will let you know if anything additional is required based on your specific circumstances.

How to avoid gifted deposit problems

The most effective way to avoid gifted deposit complications is straightforward: plan ahead and instruct a solicitor early. Here are our key recommendations:

• Tell your solicitor about the gifted deposit from the outset. The earlier they know, the earlier they can advise you on what's needed and flag any potential issues.
• Prepare a gifted deposit letter before the mortgage application is submitted. This removes one potential obstacle before it arises.
• Make sure the donor understands what documentation they will need to provide. Your solicitor can give them a clear checklist.
• Confirm with your mortgage broker or lender that a gifted deposit is acceptable, and that your donor qualifies as an acceptable source, before applying.
• Do not transfer the funds until your solicitor advises you to. Timing matters more than most people realise.
• Allow extra time if the donor is elderly or lives abroad. Additional checks may be required, and it is always better to build this time in from the start.

Clapham & Collinge can help with gifted deposits

Gifted deposits are something our conveyancing team deal with on a regular basis, and the single most important piece of advice we can give is this: get the right legal support in place early.

Whether you are a buyer receiving a gifted deposit or a family member looking to help a loved one onto the property ladder, our experienced conveyancing team can guide you through the process, make sure all the necessary documentation is in order, and ensure that your transaction progresses as smoothly as possible.

To find out more or to discuss your circumstances with a member of our team, get in touch with our conveyancing team today.

The information in this article is for general guidance only and should not be treated as legal advice. It is not a substitute for obtaining advice tailored to your circumstances. While we aim to ensure accuracy at the time of publication, laws and guidance may change. Clapham & Collinge LLP accepts no liability for any loss arising from reliance on this content. For personalised advice, please contact our client relations team to book an appointment.