Gifted Deposit buy-to-let Mortgage
Scott West explains how using a gifted deposit for a buy-to-let mortgage works.
Can I get a buy-to-let mortgage with a gifted deposit? How does it work?
You can. Many lenders accept gifted deposits on a buy-to-let purchase, and the detail sits with the lender. Some will take a deposit from any extended family member — a grandparent, cousin, brother, sister or parent.
Others apply a tighter rule. The gift may need to come from a parent, and the lender may want a clear reason for it being given. A number of lenders remain open to you; which ones depends on where the gift originates.
Can I use a gifted deposit as a buy-to-let first time investor?
You can, though it narrows the field. Buy-to-let criteria work a little like the faces in a game of Guess Who: as you give us more about your circumstances, we set aside the lenders that no longer fit.
Being a first-time landlord with a gifted deposit removes a few lenders from consideration, but several remain. Your choice is narrower, not closed.
What are the buy-to-let mortgage eligibility criteria for a gifted deposit? Do all mortgage lenders accept gifted deposits for buy-to-let mortgages?
For most lenders, the gift has to come from family. A small number will consider a deposit from friends.
In most cases the funds need to originate in the UK; a gift from family abroad introduces anti-money laundering complications. The money must be a genuine gift, with no expectation of repayment. Where repayment is expected, it is a loan rather than a gift.
If your parents are advancing you £50K that you intend to repay, in instalments or at some future point, the deposit changes character. Most lenders will decline it, because the obligation to repay creates a liability that affects affordability.
Do I need a gifted deposit letter for a buy-to-let mortgage? If so, what will need to be included in it?
There is no fixed format. Some lenders want a letter, some accept an email, and some rely on confirmation from the broker.
At the underwriting stage, what we need depends on where the money sits. We usually only require bank statements. If the funds are still held in your parents' account, a statement showing the balance and how it has accumulated is generally enough.
If, for example, £1,000 a month has been going into a savings account, the statement shows how the wealth was built and where it is held today.
If the money is already in your account and was transferred recently, we need statements for your account and for the account it came from, evidencing the transfer out. That satisfies the anti-money laundering requirements.
Can I only receive gifted deposits from family members for buy-to-let?
It is predominantly immediate family, with a few exceptions for extended family such as cousins and siblings. Immediate family tends to be the stronger position.
Is there a limit on how much can be gifted for a buy-to-let deposit?
No. Your benefactor can gift as much as they wish, whether a parent, grandparent, brother or sister. There is no restriction on the amount.
On a buy-to-let purchase you typically need a 25% deposit. You should also account for the valuation, the legal work and the other professional costs and reports involved.
So plan for the 25% plus a few thousand pounds to cover those costs. Whether the deposit is your own funds, a gift, or a combination of the two, what matters is that it covers the full requirement.
Do you have to pay tax on a gifted deposit when purchasing a buy-to-let?
I am not an accountant, so please take tax questions to one. Speaking generally, cash gifts are not taxable.
Inheritance tax rules can apply if the person making the gift passes away within seven years, which raises a wider question for your accountant about any inheritance tax liability on the gift. For you, the recipient, there should be no tax to pay.
What will happen if a gifted deposit is not declared for a buy-to-let mortgage?
Suppose your parents gave you money 12 or 18 months ago and it has sat in your account since. A gift was made, but you did not use it straight away. That can change how a lender treats it; some will still regard it as a gifted deposit, some will not.
Where there is an immediate gift and you have not declared it, a lender may treat that as mortgage fraud and decline the application. That can seriously damage your ability to borrow in future, so full transparency is essential.
How do solicitors check the source of funds?
In most cases the money moves from a relative's UK bank account into your UK bank account to buy a UK property. That keeps the checks straightforward, because bank statements show the funds in each account.
UK banks operate clear requirements and controls on how they process money and carry out these checks. The funds will almost certainly be subject to anti-money laundering checks to some degree.
The exercise is about evidencing wealth and how it was built. To take an extreme example: say your parents gifted you £500,000 towards a substantial buy-to-let property, but they are retired and each earns £15,000 a year. A lender would reasonably ask how they could afford to give that.
Provided the position is plausible and you can explain it, that part should present no difficulty.
What is the seven year rule for gifted deposits for buy-to-let mortgages?
Take proper advice on this from an accountant, but in general terms the seven-year rule applies to gifts. If your parents gift you £100,000 and pass away within seven years, the money is treated as part of their estate. The gift is then counted within the estate when the inheritance tax liability is calculated.
If a parent gave you £100,000 and then passed away the following year, that £100K would be deemed to sit within their estate for inheritance tax purposes. There may be ways to plan around this, and your accountant can advise you properly.
What is the alternative to gifted deposits for buy-to-let mortgages?
There are several routes. The most obvious is to use your own deposit — your own savings.
There were once a few lenders that would accept a personal loan as a deposit. You could take a £30,000 loan from your bank and put it straight in as a deposit. Few, if any, allow that now.
Equity release from another property is a further option. If you hold equity in your own home, or your parents hold equity in theirs, you could draw capital from that property. Where the funds come from a parent, that simply becomes a gifted deposit in any case.
A bridging loan is another consideration — perhaps you want to buy without putting in your own deposit. You can purchase with a bridging loan secured against both properties. That is an equity-led approach rather than a gift, and it can simplify the purchase. It comes down to how you frame the problem.
What are the pros and cons of a gifted deposit for a buy-to-let mortgage?
Being given money is, plainly, a help. The clear advantage is that it lets you enter the property market sooner than you could on your own.
For you as the recipient, the acquisition delivers a stronger return on what you have personally committed to it.
There is a further point worth noting. As the deposit grows beyond 25%, you may open up different lender choices, or potentially access a different rate.
On the other side, a gifted deposit can restrict the lenders available to you, and combining gifts from several different people can narrow the options further.
How a broker helps
The essential point is that a broker connects you with the lenders that accept gifted deposits — from a parent, sibling, aunt, uncle, grandparent, or whoever it may be.
We approach the right lender from the outset and order the underwriting so that proving the source of wealth is straightforward.
Your property may be repossessed if you do not keep up with your mortgage repayments.
Most buy-to-let mortgages are not regulated by the Financial Conduct Authority.
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