What is a gifted deposit and how will the Conveyancer need to deal with this?

A substantial number of homebuyers, in particular first time buyers, are lucky enough to receive help with their purchase in the form of a cash gift.

Lenders have strict rules surrounding gifts, and Conveyancers will also need to ensure that everyone involved understands the implications of the gift and that the correct procedure is followed in dealing with it.

The Mortgage Advice Bureau carried out research that revealed one in seven people are either relying or planning to rely on a gifted deposit in order to make their house purchase. Other figures suggest that between 30% and 50% of first time buyers will receive help, largely from parents or grandparents.

Legal implications of a gifted deposit

The first thing you need to do is to establish with the donor the basis on which the money is being given, that is, whether it is an outright gift or whether they expect repayment in the future.

If a mortgage is being taken out, the lender will require confirmation that the money is an outright gift, and they will need the donor to sign a gifted deposit letter stating this.

Where a purchase is joint with someone else, both parties should take independent legal advice. The person whose family is making the gift can take steps to protect the money. For example, if one party is putting more into the purchase than the other, they can have a larger share in the property.

Should the donor be made bankrupt, there is a risk that the trustee in bankruptcy could overturn the gift and claw back the money to pay off creditors.

A final issue to consider is that if the person who made the gift were to die within seven years, the gift would be taken into account when calculating Inheritance Tax on their estate.

Conveyancer’s role in dealing with a gifted deposit

There is extra work for the Conveyancer to carry out when a gifted deposit is being used, and you should ensure that you notify them at the start of the transaction so that they can start work early on.

You must also tell the lender that you will be receiving money from another source and obtain their approval to this when you apply for your loan.

The Conveyancer will need to verify the donor’s identity, as well as yours, and see proof of their address.

They will also need to check the source of funds, which is a requirement under anti-money laundering regulations. This means that the donor will need to provide financial information to your solicitor, such as bank statements.

The donor should also take independent advice to ensure that they understand the implications of the gift and to ensure they understand that they will no longer have any legal right to the money, nor to any share in the property or right of occupation.

Contact us

Buying with a gifted deposit? Our Conveyancing Team can help you deal with lender requirements, paperwork and source-of-funds checks early, so your purchase keeps moving smoothly. Contact us today for clear guidance on gifted deposits.