Many first-time buyers get onto the property ladder with the help of a gifted deposit. Here, we look at whether you can legally repay a gifted deposit and why many lenders have strict criteria surrounding this issue.
If you’re a first-time buyer preparing to apply for a mortgage, you may be relying on a gifted deposit to help you with your property purchase. Typically given by a family member or loved one, gifted deposits are incredibly common among first-time buyers struggling to save for a deposit.
Many of our clients ask us whether they can repay their gifted deposit at a later date. While this may seem like an easy arrangement, it’s not always straightforward, and not all lenders will let you. Here, we cover what you need to know before using a gifted deposit to buy your first home.
What Is a Gifted Deposit and How Does It Work?
A gifted deposit is money given to you, usually by a parent or relative, to help you buy a property. Most importantly, this money is given with no expectation of repayment (hence “gifted”).
This is where the distinction between a gifted deposit and a loan becomes important. If the money is expected to be repaid at a later date, then your lender may treat it as a loan. That can impact your affordability calculations and your lender’s ability to offer you a mortgage.
Lenders care about this distinction as they need to assess your financial situation and ability to repay your mortgage. Taking on a loan, even informally to a family member, may impact their assessment.
Who Can Gift You a Deposit?
The source of the gifted deposit matters to lenders, as it helps them assess the likelihood of you being able to repay the amount. Consequently, lenders will typically accept:
- Parents
- Grandparents
- Siblings
- Partners
Whilst it’s not as common, there is a small number of lenders who will accept gifted deposits from:
- Friends
- Employers
- Landlords (this may be a concessionary purchase, whereby your landlord sells the property at a below market value price, and the difference is your deposit)
Can You Repay a Gifted Deposit Later?
It’s essential that when you’re applying for a mortgage with a gifted deposit, you’re honest with your broker and lender about your intentions to repay the amount later. As mentioned above, lenders treat the distinction between a gift, with no expectation of repayment, and a loan, which is what it becomes if you start to pay it back, very seriously.
Whilst technically you can repay the money, you may be in breach of your mortgage contract if the lender was told the money was a gift. Therefore, being fully transparent from your initial application is essential.
What Should You Do If You’ve Already Promised to Repay a Gifted Deposit?
If you’re in the process of applying for a mortgage with a gifted deposit, and you’ve already committed to repaying the money, it’s essential to:
- Speak to one of our brokers – we can review your current mortgage application and advise you on your next steps
- Consider treating the gift as a formal loan – this will give your lender a better idea of your monthly outgoings and financial stability
- Be honest with your lender – Full transparency can help you avoid complications with your application and even delays. If this means finding a new lender, it will give you the certainty that you won’t breach your mortgage contract down the line
How do you apply for a mortgage with a gifted deposit?
You’ll need to provide your lender with a gifted deposit letter that includes:
- The name of the person gifting you the money and their relationship to you
- Your name
- The amount gifted
- Confirmation that there is no expectation for the gift to be repaid
- Statement that the person giving you the money has no stake in the property
Lenders require this to confirm the source of funds and their anti-money laundering checks.
Our Top Tips for First-Time Buyers Using a Gifted Deposit
To summarise, while you can repay your gifted deposit, it’s essential to:
- Be transparent with your lender from the start, and always tell them if you plan to repay the deposit
- Get expert advice and support by working with a broker. We can guide you in the right direction and have these conversations with your lender for you
- Avoid informal loan arrangements, as these can put your mortgage at risk
Why should I use a broker?
If you’re a first-time buyer looking to find a mortgage, speak to our friendly team. We’ll answer any questions you might have and guide you through the process, from initial enquiry to mortgage completion.
To discuss your home move mortgage options or to ask us a question, get in touch on 0345 345 6788 or submit an enquiry here.
