Gifted Deposit Buy to Let Mortgage

And this time on the mortgage and protection podcast, Scott is back from Properties to explain how using a gifted deposit for a buy-to-let mortgage works. It's great to chat with you, Scott. Thank you for joining us again. Thank you very much. Yeah, gifted deposits is one we get asked about often, so should be good. Yes, a popular topic, isn't it? So let's get straight into the questions then. Quite naturally, well, first of all, can I get a buy-to-let mortgage with a gifted deposit? How does it work? Yes, you can. Many lenders allow gifted deposits for buy-to-let purchases. It does depend on the lender what type of deposit they accept. So some lenders will accept from any family, extended family, so that can be grandparents, cousins, brothers, sisters, parents. Others

are a little bit more strict. It has to be parents, for example, as to the reason for them offering that deposit. But quite a few we can go to, it just depends who the gift is coming from. Right. OK, so a good start there. All clear. So let's move on to this question. Can I use a gifted deposit as a buy-to-let first-time investor? Yes, it does narrow our choices. So basically the criteria for buy-to-let, I think, to think of them a bit like the faces on a guess who game. As we get more information from you, the applicant, we start to knock down faces to eliminate lenders that we can't use. So when we say first-time investors, if you're a first-time landlord and a gifted deposit, it knocks down a few lenders, but there's still some left that we can use. It does

narrow your choices, but it can be done. OK, well, again, that's good news there. A great start. There we go. And great analogy there, Scott, as well. So let's move on to the next two questions. Again, you touched on criteria there, but what is the buy-to-let mortgage eligibility criteria for a gifted deposit? Do all mortgage lenders accept gifted deposits for buy-to-let mortgages? So anything else to add there? Yeah, so the criteria for a gifted deposit, as I kind of alluded to, the most lenders has to come from family. There are some exceptions where lenders may accept deposit from friends and not family. The gifted deposit, in most cases, has to come from a UK account. It can't come from family abroad because it creates AML

problems. But it's not just the gifted deposit, it's truly a gift. So it can't. The other thing as well, it has to be a proper gift with no repayment expected. If there was repayment expected, so it's more of a loan from your parents, for example, your parents are lending you 50K, which you're going to pay back at some point in the future or monthly. That changes the deposit type. And most lenders won't accept that because then there becomes a liability for repayment, which impacts affordability. So as long as it's a true gift, then we can look at it. Right, OK, so actually a point to bear in mind there. Interesting there. So moving on to this question, this is a good question actually. So do I need a gifted deposit letter for a buy to let mortgage?

And if so, what will need to be included in it? So there's no specific format for this. Some lenders want a letter, some want an email, some just want confirmation from the broker that it is. When it comes to the underwriting process, depending where the money is, we'll need bank statement. So if it's currently still in the parents bank account, for example, then it's just a bank statement from the parents showing the balance and the build up of money in the account as well. So if it's like a savings account that your parents have, it's likely to show that there's a thousand pound a month going into their savings account or whatever it might be, just showing how that that wealth built up and where the money is currently. It's in your account

and it's been transferred recently. Then it's likely to want your bank account and then still the bank account that it came from showing the transfer out just to tick anti money laundering requirements. But yeah, we're going to the letter point. It's not always required. Right. OK, there we go. So that's clear there, hopefully. Now, again, this is a popular question. You've touched on this already. Can I only receive gifted deposits from family members for Biterlet? So again, do you have anything else to add here? No, largely what we kind of covered already, to be honest with you, it's it's primarily immediate family. There's a few exceptions from extended family, so cousins and siblings. But otherwise, yeah, for most people,

think of immediate family as being your better option. OK, so again, hopefully that's clear there now. So moving on to this question, people would like to know, is there a limit on how much can be gifted for a Biterlet deposit? No, your benefactor, I guess, is a better word. Parents, brothers who might be gifting the money can gift you as much as they like. There's no requirements or restrictions on how much they can lend you. So I lend you gift you when it comes to the purchase of a Biterlet. Typically, you're going to need 25 percent deposit and then you need to bear in mind things like valoration costs, legal costs, you know, professional costs and reports that need to be done. So 25 percent plus a few thousand pounds extra

just to cover the other bits and pieces. So as long as your deposit covers that, whether that's a mix of your deposit and gifted or entirely gifted, then that's what matters. Right. OK, there we go. That answers that there. Thank you. So let's continue. We're about halfway through the questions now. I'm not sure how much you can say for this next question. So do you have to pay tax on a gifted deposit when purchasing a Biterlet? Yeah, obviously caveat with not an accountant. Police speak to an accountant. But generally speaking, gifts, cash gifts are not taxable. There are inheritance tax rules that may apply if the giver passes away within seven years. It's called the seven year rule. So that's to do with their estate, how they've inherited taxes calculated on their estate.

So it's a bigger question to ask an accountant regarding inheritance tax liability for the gift. But for you, the receiver, no, there's no there shouldn't be any tax to pay. Right. OK, so important to know there, but good news as well. OK, so people would like to know as well, what will happen if a gifted deposit is not declared for a Biterlet mortgage? So, for example, let's say your parents gave you some money 12 months ago, 18 months ago, it's been sitting in your account since. So it is a gift, but you didn't use it immediately. It's been sat there for some time. It can change how the lender will view it. Some lenders will view it as a gifted deposit, some won't. But in the event there is an immediate gift

and you haven't declared there is a gift, the lender may deem that to be mortgage fraud, reject the application, seriously hinder your ability to get the mortgage in future. So it's apparent is critical. OK, so an important point there. Now, another question here asks, how do solicitors check the source of funds? I mean, in most instances that we're talking about, the money is coming from a UK relative UK bank account into your UK bank account for the purchase of a UK property. So the checks are pretty straightforward. Banks never show the money in the account. Firstly, UK banks have requirements and restrictions on how they process money and handle their checks. So the money is almost certainly a more checked to some degree.

And just seeing proof of wealth, proof of build up. So your parents, in the extreme example, gifted you 500,000 because you were buying a huge buy to let property. But your parents are retired and only 15K a year each. There might be questions about how they afforded that savings and how that that built up and why they can afford to give it to you. But as long as it's plausible and you can explain it, there should be no issues getting through that part. Right. OK, so again, that's good news there. Now, we've got four questions left. And Scott, the next question is interesting as well. So what is the seven year rule for gifted deposits for buy to let mortgages? Good question. So this kind of harps back to the previous one I mentioned.

I'm not an accountant. You will have to speak to an accountant for proper advice on this. But generally speaking, the seven year rule applies to gifts. So if your parents gift you 100000 pounds and then they die within seven years of that, the government consider the money still within their estate. So they are taxed on it and how to twice. So the parents give you 100K then they pass away next year. The 100K was still deemed to be in their estates when they calculate their IHT liability. There are some ways around that potentially. But your accountant can give you better advice on that. OK, thank you for explaining that there. So let's look at this question. What is the alternative to gifted deposits for buy to let mortgages?

I mean, that might be obvious. It might not. So there's a few different options depending on how we're structuring what we're doing. The obvious one is to have your own deposit in the first place, have your own savings. There used to be a few lenders that would accept personal loans as a deposit, which was an interesting one. So you could go get a £30,000 loan from your bank and then immediately put that in as a deposit. And there were some lenders that used to accept that. I don't think that many do now. And equity release from another property is another solution. So if you already have your own home with equity in it, or you've got parents with equity in their home, you could look to release capital from another property.

Obviously, it comes from a parent's that it becomes a gifted deposit anyway. Ultimately, when the cash comes out and is moved across. So there's different ways of doing it. And if we're looking at a bridging loan, for example, so maybe you want to buy a property without all your own deposit and your parents haven't got the cash to lend you, we can do a bridging loan, purchase on a bridging loan and secure against both properties. So there's an equity grab versus a gifted deposit. And that can simplify things for the purchase. So it's not the way I'm looking at the problem. OK, there we go. So some different options there depending on your circumstances. Now, again, with the next question, you've probably covered it

throughout the episode, Scott. But in summary, what are the pros and cons of a gifted deposit for a buy select mortgage? I mean, a gifted deposit is always nice, isn't it? Well, it's always nice. Anyone giving you money is a good thing, right? So obviously, the pros are that it allows you to get into the property market quicker than you would have done by setting it by yourself. Ultimately, for you as the recipient, you've benefited from cash living at the end. So your buy select acquisition is a better return on investment from your own perspective, from what you physically put into it yourself. But if the deposit becomes larger, more than 25%, you could benefit from a lower rate potentially or different lender choices.

So there could be some benefits if you have a bigger deposit. And the cons, obviously, with a gifted deposit, it can restrict some lender choices. So we might start removing some lenders from our options if we're using gifted deposits from different people. Right. OK, there we go. Well, thank you for that. And then just lastly, as always, you've demonstrated this, Scott. But how can a mortgage broker help here? Have you got anything else to add? Or do you think we've covered all that we can here? I think we've largely covered most of it. I mean, the key takeaway is that a mortgage broker can connect you with the right lenders that accept gifted deposits in the format that you're receiving it.

So whether it is parents or siblings, aunts, uncles, grandparents, whatever it might be, the broker can make sure we approach the right lender to begin with and then streamline the underwriting process so that there's no issues when it comes to proving source of wealth. OK, there we go. Thank you ever so much for that, Scott. Hopefully that's proved useful to anyone listening to this. And I'm sure we'll catch you on the podcast again soon. Perfect. I look forward to it. Please note your property may be repossessed if you do not keep up with your mortgage repayments. The Financial Conduct Authority does not regulate most buy-to-let mortgages.