First-time buyer: Can I use a gift deposit from my family?

Question

Please can you help with a question about first time buyer deposits? I’m planning to buy a house next year and my parents have offered me a deposit. They said they wanted to make sure the money was only used for my deposit – plus stamp duty costs etc. Its value is 50 thousand pounds sterling.

I would like to know if mortgage lenders accept a deposit from a family member. Money is a gift, not a loan, and so is their money, not mine. If it is accepted, do they have to transfer the money to my bank account, or will the lender/attorney accept it directly from my parents?

Darren’s answer

Yes, in fact, deposits from parents are very common, and most UK mortgage lenders will accept them, provided some checks are completed.

Lenders are generally happy to accept money from close family members, but will want confirmation of the following:

• • It must be a real gift (which I mentioned)
  • Your parents do not expect to be repaid, and will not have any equity rights to the property
  • The gift will not create an additional financial obligation that may affect your ability to afford the mortgage

This is usually proven by a donor deposit acknowledgment or a letter signed by your parents.

In terms of source of funds, most UK lenders will accept a gift from:

• • Parents/grandparents
  • Brothers
  • Other close family members (depending on lender)

Please note that both the lender and your lawyer will also ask for additional information, this is usually not a problem and includes the same information from your parents such as:

• • Proof of identity and proof of address
  • A bank statement showing the source of funds
  • Signed gifted deposit letter

These checks are part of routine anti-money laundering requirements.

The usual practice will be for your parents to hold the funds until the purchase is ready to be made, rather than transferring them to your account. Even if the funds are transferred, the above information regarding the source of the funds will still be required.

A gifted deposit should put you in a strong position as a first-time buyer, giving you access to better rates by reducing your loan-to-value (LTV) ratio.

It’s a good idea to talk to a broker who can check your affordability to give you an idea of ​​the maximum borrowing limit, including the gifted deposit.