A significant number of UK homebuyers are turning to family for financial help with deposits.
- A growing trend shows one in seven buyers use gifted deposits to purchase homes.
- Rising house prices make saving independently for deposits increasingly difficult.
- Legal and financial guidelines must be followed when receiving gifted deposits.
- Expert advice highlights potential tax implications associated with gifted deposits.
In today’s challenging housing market, more aspiring homeowners are depending on family support to purchase properties. This shift is driven by rising house prices and economic factors that make it harder for individuals to save the necessary deposit on their own.
Notably, one in seven homebuyers are now using gifted deposits from family members, as highlighted by recent research from the Mortgage Advice Bureau. This assistance is increasingly crucial in helping people, particularly first-time buyers, access the property ladder.
However, there are important factors to take into account when utilising such financial gifts. Danny Belton, head of lending at the Mortgage Advice Bureau, emphasises the need for transparency. He states, “It’s important to confirm that the deposit is genuinely a gift.” Lenders typically demand proof, such as a ‘gifted deposit letter’, to verify that no repayment is expected and the donor holds no interest in the property.
The gifted deposit can streamline the mortgage process, potentially reducing the loan-to-value ratio, which may make obtaining a mortgage easier. However, lenders have varied requirements regarding what constitutes an acceptable gifted deposit, and conditions often stipulate that the funds must come from close relatives.
Both the recipient and the donor are required to complete certain legal steps, including signing a gifted deposit letter and potentially providing identification and proof of funds. This documentation must clearly state that the transaction is a gift, with no associated repayment obligations or ownership claims from the donor.
Belton also advises on the possible tax consequences of receiving such gifts. If the donor passes away within seven years of making the gift, the amount might be subject to inheritance tax based on the estate’s value. Thus, it is wise to consult with solicitors or financial advisers to fully understand and address any tax considerations tied to larger sums.
Gifting deposits can be beneficial but requires careful attention to financial and legal requirements.
