With the ever increasing gap between financial earnings and the property market continuing to widen, it is now becoming far more frequent for Mortgage Lenders to be more accepting of home buyers receiving a Gifted Deposit, which generally is received from a close family member, to assist with their purchase.
Most of you will be familiar with the numerous television adverts during the commercial breaks by Lenders offering various mortgage products to Home Buyers where assistance is being given by a close family member (i.e. the Bank of Mum and Dad!)
What is a gifted deposit?
It is normally where someone, generally a member of the family, gifts the Home Buyers a sum of money towards the deposit for their new home. Where the Home Buyer is applying for a mortgage the amount of the gift must be disclosed.
The Gift can be for as little or as much as the Giver wishes to gift.
The Gift cannot be a loan.
What are the Implications of the Gifted Deposit?
The gift will have implications for both the Giver (Donor) and Home Buyer (Done). The financial implication of this is that if the Donor passes away within 7 years of making the gift then the Home Owner may be required to pay inheritance tax on the amount of the gift.
Further, the mortgage lenders will require a Declaration from the Donor declaring the amount being gifted and declaring that they will not be acquiring any interest in the property i.e. it is an outright gift and that the money being gifted is not the subject to any action or proceedings being bought against the person providing the funds i.e. bankruptcy proceedings. We as lawyers need to know about the gift element as soon as possible so we can take all the necessary steps to protect the lender and the Home Buyer, this may mean that an Insolvency Indemnity Policy may be required.
We may also need to know the source of the gifted funds and carry out various checks against the Donor so please tell us sooner rather than later so that the correct procedure can be followed and we can complete your purchase without delay.