When someone offers money to help you buy a property without expecting it back, what exactly is a gifted deposit—and why do lenders require so many checks to confirm it?

 

A gifted deposit is a sum of money given by a family member or close relative to assist with a home purchase. The key feature is that this money is a gift—it does not need to be repaid, and the giver has no legal claim or interest in the property. However, mortgage lenders are very cautious and insist on strict checks to ensure the gifted deposit is legitimate and not a disguised loan or tied to any future claim on the property.

 

What Is a Gifted Deposit?

 

A gifted deposit is a financial contribution given freely, typically by parents, grandparents, or close relatives, to help a homebuyer meet the deposit requirement for a mortgage. It is not a loan, so the buyer does not owe the donor repayment, nor does the donor have ownership or control over the property. This type of gift can be crucial for many buyers, especially first-time buyers, who may struggle to save a sufficient deposit.

Mortgage lenders often accept gifted deposits but with clear criteria to verify it is genuinely a gift and not a financial risk to the lender.

 

Why Do Lenders Require Checks for Gifted Deposits?

 

Lenders have a legal and regulatory responsibility to ensure the mortgage applicant is able to afford the mortgage and is not under undisclosed financial pressure. To do this, they carefully scrutinize the source and nature of the deposit funds.

 

Key reasons for these checks include:

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• Preventing Mortgage Fraud: Ensuring the gifted deposit is not actually a loan helps avoid hidden debts that would increase the borrower’s financial commitments.

• Anti-Money Laundering (AML) Compliance: Lenders must confirm that funds come from a legitimate, legal source to prevent criminal money entering the property market.

• Affordability Assessment: Unknown loans can affect the borrower’s ability to repay, so lenders need clear evidence the gift is unconditional and not repaid.

• Protecting Lender’s Security: Gifts must be free from any claims or interests in the property, ensuring the lender’s security stake is not compromised.

• Financial Transparency: Verifying donor identity and relationship ensures transparency and prevents misuse of funds.

 

What Checks Are Typically Required?

 

Mortgage lenders usually require the following documentation and information when a gifted deposit is involved:

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1. Gifted Deposit Declaration or Letter

 

A formal letter, often called a gifted deposit declaration or deed of gift, must be provided by the person giving the gift. This letter typically includes:

• The donor’s name and relationship to the buyer.

• The exact amount gifted.

• A clear statement that the money is a gift and not a loan.

• Confirmation that the donor expects no repayment.

• A declaration that the donor will have no interest or claim on the property.

• A statement that the donor is financially able to give the gift without hardship.

The letter is often signed and dated by both donor and recipient and may have to meet lender-specific wording or legal standards.

 

2. Proof of Relationship

 

Lenders usually verify the relationship between the donor and the buyer. This is commonly done by asking for identification documents or statutory declarations that establish the family or close relationship.

Most lenders prefer gifts from immediate family members like parents, grandparents, or siblings. Gifts from friends or distant relatives are less commonly accepted and may require extra scrutiny.

 

3. Evidence of Source of Funds

 

To satisfy AML checks, donors must show where the funds have come from and that the money was legitimately obtained. This usually means providing:

• Recent bank statements showing the money leaving the donor’s account.

• Evidence confirming the money belongs to the donor (not a loan).

• For overseas donors, notarised copies of identification and official translations of bank statements if not in English.

These records help confirm that the deposit is genuinely gifted and the money is clean and legal.

 

4. Identity and Address Verification

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Like mortgage applicants, donors need to prove their identity and address through documentation such as passports, driving licenses, or utility bills. For non-UK-based donors, additional notarisation and certified translations may be required to verify authenticity.

 

Typical Scenarios and Lender Policies

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• Close family members only: Most lenders will only accept gifts from close relatives. Gifts from unrelated friends or non-family members may be rejected or need additional checks.

• Gift size: There is usually no upper or lower limit on the amount that can be gifted, but large gifts may attract more detailed inquiries.

• International gifts: When the donor lives abroad, lenders require more stringent documentation to verify the donor’s identity and the origin of funds.

• Gifts as part of shared equity or trusts: Gifted deposits tied to terms such as repayment on sale or shared equity agreements are treated differently and may not be accepted as a true gift.

 

 

Common Questions About Gifted Deposits

 

FAQ

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Q1: Can anyone give me a gifted deposit?
Most lenders require the donor to be a close family member like parents, grandparents, or siblings. Some may accept gifts from extended family, but gifts from friends are rarely accepted.

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Q2: Is a gifted deposit taxable?

In the UK, gifted deposits generally are not subject to tax for the recipient. Donors should consider inheritance tax rules if the amount is large, but gift tax as such does not apply.

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Q3: What if the gifted deposit is part loan, part gift?
If there is any expectation of repayment, the entire amount may be treated as a loan and affect affordability checks, potentially complicating mortgage approval.

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Q4: What happens if I don’t declare a gifted deposit?
Failing to declare a gifted deposit is mortgage fraud, which can have legal consequences including mortgage rejection, fines, or prosecution.

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Q5: How long does it take to verify a gifted deposit?
Verification depends on lender processes but generally takes a few days to a couple of weeks, depending on how quickly documentation is submitted and verified.

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Q6: Do I need a solicitor to help with gifted deposits?
Yes, solicitors often assist in preparing the gifted deposit letter and ensuring all legal requirements are met, helping avoid delays in the conveyancing process.

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Q7: Can gifted deposits come from overseas?
Yes, but international gifts require more documentation, such as notarised IDs and translated bank statements. Some lenders have stricter policies on overseas gifts.

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Q8: Can gifted deposits be given by someone who is not yet retired or on benefits?
Yes, but the donor’s financial situation may be reviewed to ensure the gift does not cause financial hardship for the donor.

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