Are you finding it difficult to get onto the property? Well, join the club!
More than half of first-time buyers under the age of 35 apparently rely on assistance from their parents to help them fulfil their dream of buying a home.
The ‘bank of mum and dad’ has been around for years. But it’s not always something lenders are keen to encourage as they want to know how you raised the money.
This short guide to gifted deposits should help anyone considering borrowing from the rents to get them on the property ladder.
What is a gifted deposit?
A gifted deposit is a sum of money given to someone – typically by a member of their family – to part fund or pay the entire deposit to buy a home. A gifted deposit should have no strings attached and shouldn’t need repaying (that’s a loan).
Also, whoever has gifted the money should have no ownership in the property. It’s literally a gift. Gifted deposits usually come from close family (such as parents). Some lenders are reluctant to accept gifted deposits from distant relatives. This is something to be aware of if you have had an offer from such a relative
How to prove a gifted deposit
Some lenders require a gifted deposit letter proving the source of funds being used for the deposit. This should be from the the person giving and explaining:
- Their relationship to the buyer
- How much money they’re giving
- How they raised the funds confirming that they will have no rights or ownership of the property in the future.
For money laundering purposes, lenders will usually require that the giver provides a form of photo ID and potentially bank statements too.
Pros and cons
The positive side is pretty obvious: you get to buy a home and someone else is helping you. The more they give, the more chance of a lower monthly mortgage payment, too. It might be the quickest and easiest way of getting you on the property ladder.
There are some drawback, notably that there is probably more admin work in the processing of the mortgage application. But that shouldn’t put you off. Also, if the lender isn’t satisfied, they could ask more questions so it can slow the process a little.
If a gifted deposit doesn’t work in your family’s circumstances, there are other options. You could consider a lending deposit, where the donor will offer an interest free loan instead. This can be paid back over many years so it’s not too hard hitting on the recipient.
You could also consider a joint mortgage where parents or grandparents apply to pay part of the mortgage. This can be a big benefit if they have more purchasing power but typically it means larger monthly payments and higher interest rates.
If you have been offered a gifted deposit and want help with your mortgage, contact us today.
Your home may be repossessed if you do not keep up repayments on your mortgage