If you’re struggling to save for a deposit, your parents can help you onto the property ladder by gifting you money. Financial help of this kind is known as the ‘Bank of Mum and Dad’. This guide explains what gifted deposits are, how they work and other low-deposit schemes you could be eligible for.
Buying a house through a gifted deposit
Gifting a deposit comes with rules you’ll need to be aware of.
Your mortgage lender may require written proof that the money came from your parents (called a Gifted Deposit Letter). This allows them to confirm that the money isn’t a loan that requires regular repayments and ensures that if they repossess the house, your parents won’t have any legal rights to it.
The Gifted Deposit Letter should include the following information:
- Your parents’ names
- Your name
- The amount of money gifted
- The source of the money
- The nature of your relationship
- Confirmation that it’s a gift that doesn’t require repayments
- Evidence that your parents are financially able to support
What are the tax implications of a gifted deposit?
Your parents can gift you up to £3,000 yearly without tax implications. If they give you more money towards a deposit and they pass away within seven years, you must pay inheritance tax.
Buying a house through the ‘Bank of Mum and Dad’
If you’re buying your first home through a gifted deposit from your parents, the process will unfold as follows:
- Inform your solicitor. Let your solicitor and mortgage broker know that the deposit is a gift from your parents.
- Provide evidence of the gift. Your parents must provide your solicitor and mortgage broker with a Gifted Deposit Letter outlining how much has been given, any interest due and the repayment terms.
- Provide proof of ID. You and your parents must provide proof of ID to your solicitor.
- Include proof of funds. You must provide evidence of where the money comes from. This includes bank statements from your parents outlining how they’ve built up that sum.
- Draw up a deed of trust. Ensure your solicitor draws up a deed of trust to determine what happens to the money in the future. This should cover whether the amount needs to be repaid and what happens if the property is sold.
What other options are there for first-time buyers?
With our Parent Power scheme, whatever your family or friends contribute, we could match it up to a maximum of 5% of the purchase price.
Deposit Unlock lets you buy your new home with a 5% deposit on mortgage products up to £750,000.
Already have a 10% deposit? With Deposit Boost, we can boost it by 5%, meaning you’ll need an 85% mortgage.
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