Gifted deposits explained

Receiving a gifted deposit from family or friends can be the extra boost needed to make your homebuying dreams a reality. With rising prices, these types of deposits are becoming more and more common for securing mortgage approvals.

We know that gifted deposits can seem confusing, but we’re about to break it all down for you:

What is a gifted deposit?

A gifted deposit is money given to you by close family or friends to help cover the purchase price of the property. It’s one of the most generous gifts someone can give.

The funds are simply gifted with no strings attached – it is not a loan that needs repaying. The gift money may come from the donor’s savings, or they may even tap into their home equity if they want to help even more.

Gifted deposits can feel like a lifesaver when trying to buy your first home. Having that financial gift from family or friends is incredibly generous, it can help you borrow more and broaden your purchase options. However, processes need to be followed, it’s not as simple as just transferring cash from one account to another.

Can the deposit be loaned instead of gifted?

We know it can get a little confusing figuring out the difference between gifted and loaned deposits from the lender’s perspective. The main thing to understand is that lenders see these two types of help very differently.

With a gifted deposit, the money is yours to keep – no strings attached. The gift doesn’t affect the lender’s view of what you can afford for repayments.

A loaned deposit is seen as more of a commitment. The lender may accept a loaned deposit if there’s a signed agreement saying you only need to pay it back when you sell the property. Otherwise, they’ll count those loan repayment amounts when reviewing your financial situation and mortgage affordability, which won’t be favourable.

Do I need to declare a gifted deposit?

We know paperwork isn’t anyone’s favourite, but it’s important to declare any gifted deposit you receive for your mortgage. Being upfront avoids headaches down the road.

You’ll need to inform both your lender and conveyancer/solicitor about the gift. Lenders want to make sure there’s no hidden debt or loans involved. They need to confirm the money is truly a no-strings attached gift to you, and where that money is coming from.

What is a gifted deposit letter?

The good news is that most lenders will provide a simple template letter to confirm your gifted deposit. The gift-giver needs to fill it out with some basic personal details, the gift amount and it needs to state the money is non-refundable with no property rights attached.

As part of anti-money laundering procedures, the gift-giver will also need to provide ID, proof of address, and bank statements to your conveyancer to show exactly where the money is coming from.

Pros of gifted deposits

Getting a financial boost through a gifted deposit can be a real game-changer when buying your first home. We want you to know the main pros so you can see how this type of help from family or friends could benefit you:

• It allows you to achieve homeownership sooner rather than spending years saving on your own. A gifted deposit gives your goals a jump start. 
• More deposit money means more options to work within your price range. You’ll have greater flexibility when finding a home you love.
• Bigger deposits mean lower monthly mortgage repayments and less interest paid over the life of the loan. More savings for you. 
• Legally, gifted deposits come with no strings attached between the giver and the recipient. 

While not feasible for everyone, gifted deposits can be a huge help in purchasing property, especially for a first home.

Cons of a gifted deposit

While the upsides usually outweigh the downsides, let’s chat about a couple of potential considerations so you can make the most informed choice: 

• Relying on family for help may unintentionally create some sense of obligation or pressure. If money issues later arise for the gift-giver, it could cause friction. But with proper legal work, the gift is irrecoverable. 
• There could be inheritance tax implications if the gift giver passes away within 7 years of giving the deposit. Something to keep in mind, but more on that later. 
• If buying with someone and the gift money is from your family, consider a deed of trust. This ensures you get the gift amount back if the property is later sold.

Other than those possibilities, gifted deposits really don’t have many downsides. You could see the extra documentation as a hassle but it’s simply due diligence to protect all parties legally.

Is there a limit on how much can be gifted?

The good news is that most lenders don’t set hard limits on how much deposit money can be gifted, but it never hurts to touch base with your preferred lender first, just be sure and avoid any unwanted surprises.

Alternatives to gifted deposits

We know that not everyone has the option to get a gifted deposit. Saving up on your own can be so tough. But there are still options out there that might help you get on the property ladder a little quicker: 

Guarantor mortgages

With these, a family member or close friend agrees to cover the payments if you can’t. The guarantor isn’t on the property deed – they just provide a financial safety net. They may need to put up their own home or savings as collateral. 

It’s a big commitment for the guarantor. But it opens doors for those who are struggling to qualify on their own.

Joint mortgages

Here you buy a home with someone else, simple as that. It could be a partner, friend, or relative. You co-own the property and can both contribute to the mortgage payments. Since lenders look at your combined income, you may qualify to borrow more together than solo. 

A joint mortgage lets you save for a deposit faster as a team. Just be mindful, that even as joint owners, the bank may require either or both of you to make the full mortgage payment if one can no longer afford it.

While saving up for that first home can feel like a lonely trek at times, know that you have options. Whether through generous family gifts, finding a co-buyer, or alternative financing, you will make it there. Stay focused on your goal, get creative if needed, and don’t be afraid to ask loved ones for help.