The ‘bank of Mum and Dad’ isn’t a new phenomenon, and as house prices continue to rise saving for a house deposit has become increasingly challenging for many would-be homeowners – resulting in parents/grandparents gifting money to help towards the deposit.
A report by Key Retirement Solutions shows more than £500m was gifted by over 55’s this year, with parents and grandparents increasingly looking to help relatives get on to the property ladder.
Do mortgage lenders allow gifted deposits?
Generally speaking, mortgage lenders are happy to accept gifted deposits from family members, although some may place blocks on who the money can be gifted by. The rules vary from lender to lender so it’s best to get advice from a mortgage broker if you have a less clear-cut situation.
Lenders will usually require you to confirm the following when gifting a deposit:
- Title and full name of person(s) providing the gift
- Relationship to applicant
- Gift amount
- Country of origin
- Confirmation of whether the gift is non-refundable
- Confirmation that the person(s) providing the gift is not the present owner of the property being purchased*, will not be living in the property on or after the completion and will not retain any legal interest in the property being purchased (including taking a second charge).
*It is worth noting that sometimes if a member of the family gifting the deposit is actually already living in the property to be bought by the other person, or, the purchaser is a tenant already living in the property, special rules will apply. Under these circumstances the lender would need to be made aware of the arrangements and be comfortable with the situation.
What are the tax implications of gifting deposits?
There could be tax implications when gifting a deposit so we always recommend to our customers that they seek independent tax advice before proceeding.
For example, if you die within seven years of gifting cash to a relative, the recipient may need to pay inheritance tax (IHT) on the money they received.
You can, however, gift up to £3,000 per financial year without qualifying for IHT and you can carry any unused portion forward by one next financial year – this means an individual can make gifts totalling £6,000 if they didn’t make any substantial gifts the year before.
How do you gift a deposit?
For grandparents and parents who want to help loved ones to buy their first home, there are several options available that will enable them to gift a deposit:
- Utilising savings – this can be a good way of gifting although those considering this option may want to bear in mind that they should keep an emergency savings fund available in case they have to pay for unexpected events or have to deal with a sudden fall in income. Those who are retired may want to be particularly cautious about using savings as they may find it harder to replace money used from a savings account without a regular employment income.
- Downsizing – this can be a good way of releasing equity, especially for those close to retirement or who have already retired and whose children have already left home.
- Equity release – this is an option for homeowners who do not want to downsize and who are aged 55 or over. Equity built-up through rising property prices can be released and then gifted while still being able to live in the property.
Here at Mortgagez, our team of fully qualified mortgage advisers is on hand to help you every step of the way and our service won’t cost you a penny when you go via our online portal. Visit our website today and obtain a quick quote to see how much you could save on your next mortgage.
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PLEASE NOTE: Article written 30 Nov 2021. Information contained within this article is likely to change and therefore should not be relied upon or form part of any form of decision making without seeking professional advice. *
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Any guidance and/or advice contained within this document is subject to the UK regulatory regime and is therefore restricted to consumers based in the UK. Any technical or regulatory information contained within this document was correct at the time of producing it but as it may be subject to change it should not be exclusively relied upon when making a financial decision. The Financial Conduct Authority does not regulate advice on Buy to Let mortgages.
Article written: Nov 2021 301121 MZ000233
