Saving a house deposit is often one of the hardest parts of buying a property.
For some buyers, building the deposit presents a greater immediate challenge than meeting the expected monthly mortgage payment. However, lenders must still complete a full affordability assessment before agreeing to lend.
This is why parents, grandparents and other family members often step in to help. A gifted deposit can make a purchase possible sooner, increase the size of the deposit or reduce the amount that needs to be borrowed. It is a well-established part of the mortgage market.
The important thing is to get the arrangement right from the start.
Mortgage lenders need to know where the money has come from, your solicitor or conveyancer will need to complete the necessary identity and source-of-funds checks, and the person providing the money needs to be clear about whether it really is a gift.
Most problems arise when one of these points is left unclear until the purchase is already underway.
What is a gifted deposit?
A gifted deposit is money given to a buyer to help fund a property purchase.
Subject to the lender’s criteria, it may provide the entire deposit or be combined with money the buyer has saved.
For example, you may have £20,000 in savings, and your parents may contribute another £15,000. You would then have a total deposit of £35,000.
The important distinction is that a genuine gift is normally given without any expectation of repayment.
That sounds obvious, but families sometimes use the word “gift” quite loosely.
A parent might say, “We will give you £25,000 now, and you can pay us back whenever you are able.” From a family perspective, that may feel informal and reasonable. From a mortgage lender’s perspective, it may be a loan.
That matters because repayment creates an additional financial commitment which could affect the lender’s affordability assessment.
Similarly, if the person providing the money expects to own part of the property or recover their contribution when the property is sold, this is no longer a straightforward unconditional gift.
Before applying for a mortgage, everyone involved should agree on what the money represents. If it is a genuine gift, it can be presented that way. If repayment, ownership or other conditions are intended, these must be disclosed and considered properly.
Who can gift money towards a house deposit?
Parents are the most common source of gifted deposits, particularly for first-time buyers, but they are not the only possible donors.
Grandparents and other close relatives may also be able to help. Couples buying together may receive contributions from both families.
Where buyers can run into difficulty is assuming that all lenders treat every donor in the same way. They do not.
One lender may accept gifts from a broad range of family members, while another may have tighter criteria. Gifts from friends, employers or people outside the family can be more restrictive.
The practical point is to establish where the money is coming from before choosing a lender.
It is much easier to select a mortgage that fits the arrangement than to submit an application and discover later that the lender does not accept that source of deposit. Some lenders may also require the buyer to contribute part of the deposit from their own resources.
Overseas gifts may be possible, although they can involve additional checks. The lender and conveyancer may need more evidence about the donor, the country from which the money is being transferred and the original source of the funds.
If overseas money is involved, it is sensible to address this early rather than waiting until the conveyancing process is well advanced.
Do mortgage lenders accept gifted deposits?
Many lenders accept gifted deposits, but there is no single set of rules across the mortgage market.
Lenders can differ on:
- who they will accept a gift from
- whether the buyer must contribute some of their own money
- what documentation they require
- whether borrowed money can be gifted
- whether overseas gifts are acceptable
- whether any limits or conditions apply
That is why a mortgage should not be selected on the interest rate alone.
A lender may offer an attractive product, but if its gifted-deposit criteria do not fit your circumstances, that product may not be available to you.
A mortgage adviser should consider the whole application, including affordability, income, employment, credit history, property type, loan-to-value and the source of the deposit.
The gifted element is one part of that picture.
This is particularly important where the arrangement is less straightforward, perhaps because there are several donors, the funds are coming from overseas or the donor is not an immediate family member.
What evidence will the donor need to provide?
This is often the part that takes families by surprise.
A parent may have held the money for years and understandably wonder why they need to prove where it came from.
Property purchases are subject to identity and anti-money-laundering checks. The conveyancer must understand the source of the purchase funds and, where appropriate, the donor’s wider source of wealth.
The source of funds describes where the particular money being used for the purchase came from. The source of wealth concerns how the donor accumulated their overall wealth.
The extent of the evidence required will depend on the circumstances and the level of risk, rather than simply the size of the gift.
Savings built up gradually may be evidenced through bank statements. Money from a property sale, inheritance, investment account, pension withdrawal or business sale may require different supporting documents.
There is no advantage in trying to make gifted money look like the buyer’s own savings by transferring it early and leaving it in their account. The original source may still need to be explained.
In practice, the simplest approach is usually the best one: be clear about where the money came from and retain the relevant paperwork.
Does a gifted deposit have to be repaid?
If the money is being declared to the lender as a genuine gift, there should not normally be an expectation that it will be repaid.
This is one of the most important points to agree on as a family.
Problems can arise where parents provide £20,000 or £30,000 but privately expect monthly repayments after completion.
That is not simply a gift with an informal understanding attached. It may amount to a loan, and the lender and conveyancer should be told about it.
The same applies if the donor expects repayment when the property is sold or wants a share of any future increase in its value.
There is nothing inherently wrong with families lending one another money, but the arrangement needs to be described accurately.
A repayment obligation or claim over the property must be disclosed. Concealing it could mean that the lender has been given inaccurate information and may jeopardise the mortgage application or transaction.
It could also cause legal disputes later, particularly if family members have different recollections of what was agreed.
Are there tax implications?
Receiving a genuine cash gift towards a house deposit does not normally create an immediate Income Tax bill for the buyer simply because the money has been gifted.
There is also no general rule preventing a parent from giving more than £3,000 in a year. The £3,000 figure often associated with gifts is an Inheritance Tax exemption, not a legal limit on how much can be given.
Giving cash does not itself normally create a Capital Gains Tax charge. However, the donor may have tax to consider if they sell investments, property or other assets to raise the cash.
The principal tax consideration for a straightforward cash gift is usually Inheritance Tax.
Unless an exemption applies, a cash gift from one individual to another will commonly be treated as a potentially exempt transfer. If the donor survives for seven years after making the gift, it will normally fall outside their estate for Inheritance Tax purposes.
If the donor dies within seven years, the gift may need to be considered when calculating the estate’s Inheritance Tax position. This does not mean that every gift made within seven years will be taxed.
The outcome will depend on factors including:
- the value of the gift
- any available exemptions
- other gifts made by the donor
- the donor’s available nil-rate band
- the value and circumstances of their estate
Relevant exemptions may include:
- the £3,000 annual exemption
- unused annual exemption carried forward for one tax year
- qualifying small gifts of up to £250 per recipient
- qualifying wedding or civil-partnership gifts
- gifts between spouses or civil partners
- regular gifts made from surplus income where the relevant conditions are met
If the donor dies within seven years and cumulative chargeable gifts exceed the available Inheritance Tax threshold, the recipient may become liable for tax attributable to their gift. The calculation can be complex, so specialist tax or legal advice should be obtained where a significant gift is involved.
The seven-year Inheritance Tax rule should not be confused with the rules on deliberate deprivation of assets for care costs. There is no equivalent seven-year cut-off for a care-fee assessment.
If avoiding care charges formed part of the reason for giving money away, a local authority may treat the donor as still possessing the assets when assessing their ability to pay for care. The individual circumstances, timing and intention behind the gift will be relevant.
Tax and care-fee rules can be complex and may change. Professional tax, legal or estate-planning advice may be appropriate where the sums are significant, or the family’s circumstances are more complicated.
Can existing homeowners use gifted deposits?
Yes.
Gifted deposits are strongly associated with first-time buyers, but they can also be used by people who have owned property before.
Someone moving to a larger home might receive family assistance to increase their deposit. A person buying after divorce or separation may need additional help because less equity is available from their previous property.
The same principle applies: the source of the funds must be disclosed, and the lender must accept the arrangement.
Other aspects of the purchase, including property ownership, existing mortgages and any additional property taxes, may be different for an existing homeowner. The mortgage and wider transaction should therefore be considered on their own merits.
Getting mortgage advice before you apply
A gifted deposit can make a real difference to a property purchase, but it should be treated as part of the overall mortgage application rather than as a separate issue.
The key questions are straightforward.
Where is the money coming from?
Is it genuinely a gift?
Does the donor expect repayment or an interest in the property?
Can the source of the funds be evidenced?
Does the proposed lender accept the arrangement?
Answering these questions before an application is submitted can prevent unnecessary delays later.
Our qualified mortgage advisers can review the circumstances, check lender criteria and consider the gifted deposit alongside affordability, loan-to-value and the wider mortgage requirements.
If you are planning to buy a property with help from family, please contact one of our qualified mortgage advisers to discuss the arrangement before making your mortgage application.
Your home may be repossessed if you do not keep up repayments on your mortgage.
This article provides general information and does not constitute personal mortgage, legal or tax advice. Mortgage availability and lending criteria depend on individual circumstances and may change.
Related Reading
- How Much Deposit Do You Really Need for a Mortgage?
- How to Choose Between Fixed-Rate and Tracker Mortgages
For personal guidance, learn more about our mortgage advice .
Important Information
This article is provided for general information and does not constitute personal financial advice or a personal recommendation. The appropriate course of action will depend on your individual circumstances and objectives.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Contact our team if you would like to discuss your circumstances and the advice services available.