Understanding Gifted Deposits When Applying for a Mortgage

by | Mar 10, 2025

At Key to Mortgage, a trusted mortgage broker based in Bournemouth, we understand that saving for a deposit can be one of the biggest challenges when buying a home. With house prices rising, many first-time buyers turn to family members for financial help in the form of a gifted deposit. But what exactly is a gifted deposit, and how does it affect your mortgage application?

What Is a Gifted Deposit?

A gifted deposit is a sum of money given to a homebuyer, typically by a close family member, to help with the deposit on a property. Unlike a loan, a gifted deposit does not need to be repaid. The gift is usually provided by parents, grandparents, or other close relatives.

How Does a Gifted Deposit Work?

If you receive a gifted deposit, the lender will require proof that the money is a genuine gift and not a loan. This is because loans increase your financial commitments and can affect affordability assessments.

To prove the deposit is a gift, your mortgage lender will typically request:

A  gifted deposit letter signed by the giver, confirming that the money does not need to be repaid.

Proof of the donor’s identity and source of funds to comply with anti-money laundering regulations. This is usually requested through your solicitor as part of the conveyancing process

Evidence of the money. This is also usually requested through your solicitor as part of the conveyancing process

Who Can Gift a Deposit?

Most lenders prefer that the gifted deposit comes from immediate family members, such as parents or grandparents. Some may accept gifts from more distant relatives or even close friends, but this varies between lenders.

How a Gifted Deposit Affects Your Mortgage Application

A gifted deposit can significantly impact your mortgage application in several ways:

Increased Affordability: A larger deposit can help you secure a better mortgage deal with lower interest rates.

Lower Loan-to-Value (LTV) Ratio: The more deposit you put down, the lower your LTV, making you less risky to lenders.

Stronger Application: Having family financial support can make you a more attractive borrower.

Are There Any Tax Implications?

While gifted deposits are not subject to immediate tax, they can be considered as part of the donor’s estate for inheritance tax (IHT) purposes. If the person gifting the money passes away within seven years of giving the deposit, the gift may be subject to inheritance tax if their estate exceeds the tax-free threshold.

 

Conclusion

A gifted deposit can be a great way to get onto the property ladder, but it’s important to ensure all requirements are met for a smooth mortgage application. Always check with your lender about their specific policies and consider seeking advice from a mortgage broker or financial advisor.

If you’re thinking of using a gifted deposit, start the process early to ensure all paperwork and proof of funds are in place before applying for a mortgage.

At Key to Mortgages, we specialise in helping first-time buyers and home movers navigate the mortgage process. If you’d like to explore your options and understand how a gifted deposit could work for you, get in touch with our expert team today.

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