Gifted Deposit Mortgages: How They Work

A gifted deposit is money given to you towards your home with no expectation of being paid back. Most lenders accept them, and they are one of the most common ways first-time buyers get onto the ladder. The key word is gift: if the money is really a loan, or the giver expects a share of the home, lenders treat it differently.

Who can give you a deposit?

• Close family. Parents, grandparents and siblings are accepted by most lenders. Many also accept aunts, uncles and other relatives.
• Friends. Some lenders accept a gift from a friend, but fewer do, and they may ask more questions about the relationship.
• Gifted equity. If a family member sells you a home for less than it is worth, the discount can act as your deposit. This is called a concessionary purchase, and not every lender offers it.
• Gifts from abroad. Some lenders accept money from relatives overseas, with extra checks on where it came from and how it reached the UK.

Lenders do not usually accept a gift from anyone with an interest in the sale, such as the seller, an estate agent or a developer, except through recognised incentive schemes.

How lenders view a gifted deposit

A genuine gift is normally treated like your own savings, so it does not usually change the mortgage deals available to you. What lenders focus on is:

• The source of the money. Under anti-money laundering rules, the lender and your conveyancer must see where the gift came from, not just that it reached your account.
• The giver’s intentions. The giver must confirm they do not expect repayment and will have no share in the home.
• How much is gifted. A gift can be all of your deposit or part of it. Some lenders want a minimum contribution from your own savings for certain products.

The paperwork

Expect to provide:

1. A gifted deposit letter, signed by the giver, confirming the amount, that it is a gift not a loan, and that they will have no interest in the property. Most lenders and conveyancers have their own template.
2. The giver’s identification and proof of address.
3. The giver’s bank statements, often covering at least three months, showing the money building up or arriving, for example from savings, a property sale or an inheritance.
4. Evidence of the transfer to you or to your conveyancer.

If the giver will live in the home with you, for example a parent moving in, the lender will usually ask them to sign an occupier’s waiver, giving up any right to stay if the property is repossessed. Tell your adviser at the start if anyone else will live there.

Inheritance tax on gifted deposits

For the person giving the money, a gift can affect inheritance tax. Under HMRC’s gift rules:

• Each person can give away £3,000 a year free of inheritance tax, and can carry forward one unused year.
• Larger gifts are usually free of inheritance tax if the giver lives for seven years after making them.
• If the giver dies within seven years and their total gifts exceed the tax-free threshold, tax may be due, with a reduced rate on gifts made three to seven years before death.
• Regular gifts from surplus income can also be exempt.

You do not pay income tax on a gift you receive. Gifted equity can have capital gains tax consequences for the seller if the home is not their main residence. Families giving larger sums may want advice from a tax adviser or solicitor.

Situations that need extra care

• Self-employed. A gifted deposit does not change how the lender assesses your income, so you still need accounts or tax calculations. See our self-employed mortgage guide.
• Past credit problems. A larger deposit, gifted or not, can widen the lenders available. See our bad credit mortgage guide.
• Unusual properties. Non-standard construction or short leases narrow the lender list regardless of where your deposit came from.
• Gifts arriving late. Money that appears in your account shortly before you apply, without clear evidence, can delay underwriting. Gather the giver’s paperwork early.
• Cohabiting couples. If parents gift money to a couple, think about what would happen to it if the relationship ended. A declaration of trust, drawn up by a solicitor, can record each person’s share.

Gift, loan or something else?

If your family wants their money back one day, a gift is not the right tool, and declaring it as one would be misleading. Alternatives include:

• Family Springboard mortgages, where family savings are held as security and returned after five years.
• Joint borrower sole proprietor mortgages, where a parent’s income helps affordability.
• Guarantor mortgages, where a family member guarantees the payments.

A small number of lenders accept a family loan as a deposit, but it counts as a commitment in your affordability, so it reduces what you can borrow.

Gifted deposit FAQs

Talk to us before the money moves

We can tell you which lenders will accept your gift, what evidence your family needs to prepare and whether a gift, a family-backed mortgage or a mix of both suits you best. Your initial consultation is free.