Gifted Deposits Explained: How to Boost Your Mortgage Application With Family Help

In the current cost of living crisis, saving enough for a deposit can be a huge challenge –  particularly if you’re currently renting. In fact, many first-time buyers and home movers are increasingly finding themselves just short of the minimum deposit required by lenders, making it difficult to get approved or to access more competitive mortgage deals.

To overcome this, many applicants today are turning to gifted deposits from family members and close friends as a way to bridge the financial gap, strengthen their mortgage application, and to get a foot onto the property ladder.

But how can a gifted deposit help my mortgage application?

In this article, we answer your questions about what is a gifted deposit, how it can boost your mortgage application, and what alternatives are available to you. Let’s jump in.

What is a Gifted Deposit?

A gifted deposit is money that is given to you as a gift – most commonly by a family member or close friend – in order to help someone purchase a property without expecting repayment. The most important distinction is that a gifted deposit is not a loan. This means the gifted deposit does not need to be repaid and will therefore boost the borrower’s deposit size and strengthen their mortgage application, without impacting overall affordability.

Gifting a deposit for a house has become increasingly common for first-time buyers. As property prices continue to rise and the total cost of living increases, first-time buyers who have saved part of their deposit will still fall short of the lender’s minimum requirement.

What Counts as a Gifted Deposit?

Typically, a gifted deposit will be a transfer of money that goes directly from the gifter’s bank account or savings to the borrower (the person receiving the gift). The borrower is then required to provide their chosen mortgage lender with the relevant and accurate documentation that declares the transferred amount as a gifted deposit.

Ultimately, receiving a gifted deposit can help bolster your overall loan-to-value ratio, helping you reach a lender’s deposit threshold needed for approval and potentially allowing access to more competitive mortgage rates.

At Boon Brokers, our dedicated mortgage advisers can help guide you through the process of using a gifted deposit. As a whole-of-market mortgage brokerage, we can match you with the mortgage that best fits your financial needs.

How Can a Gifted Deposit Improve My Mortgage Application?

A gifted deposit can significantly strengthen your financial position, lowering your total loan-to-value (LTV) ratio and potentially giving you access to better mortgage rates. Because the funds are a gift and not a loan, they won’t affect your affordability assessment. As such, a gifted deposit for mortgage purposes can make it easier to meet lender criteria and improve your chances of mortgage approval.

The most direct impact that a gifted deposit will have on your mortgage application is how lenders assess your borrowing risk. Generally, with an increased deposit size, the overall risk for the lender decreases.

In short: by receiving a gifted deposit, you can increase your deposit, lower your LTV ratio, and demonstrate financial stability, all of which will improve your chances of approval.

Benefits of a Gifted Deposit

Here we have provided a quick overview of how a gifted deposit can benefit your mortgage application:

• Access Better Mortgage Rates

A higher deposit will decrease the total LTV and lower the lender’s total risk. This can often lead to more competitive interest rates and access to better mortgage products.

• Increase Borrowing Capacity

Having a larger deposit will contribute towards your overall financial stability and lender’s will perceive you as a lower risk borrower. As a result, some lenders might increase your borrowing power, giving you greater flexibility when searching for a home and improving your chances of securing a competitive mortgage offer.

• Reduce Monthly Repayments

Having a larger deposit, whether from your own savings or a gifted deposit, can help reduce the total amount you need to borrow. Consequently, this smaller loan can lead to lower monthly repayments, easing your financial burden and giving you more flexibility to manage everyday expenses or save for future goals.

• Improve Mortgage Approval Chances

Ultimately, having more available funds, such as a larger deposit, will bolster your perceived financial stability to lenders. This can enhance your credibility as a borrower, increase the likelihood of mortgage approval, and can grant you access to more competitive interest rates.

At Boon Brokers, our dedicated advisers will help you process your mortgage application, finding the lender that matches your needs. We can guide you through all the documentation required, compare the most competitive mortgage products, and find you a lender who accepts gifted deposits, giving you the best possible chance of mortgage approval.

Who Can Give a Gifted Deposit?

There’s no one location or person that can gift a deposit. In fact, a gifted deposit can come from a variety of sources, though most commonly will be provided by close family members.

Parents, grandparents, siblings, and other relatives all can provide a gifted deposit in order to help you reach your deposit target. Additionally, friends or non-family members can also contribute. However, it is important to note that lenders can scrutinise any gifts provided from an unknown/non-family member more closely, and your gifted deposit may require extra documentation to prove its validity.

While gifting money to family for deposit or receiving a gifted deposit from a non-family member is possible, it’s important to note that additional checks will likely be required. Generally, lenders will want to see a clear paper trail, including bank statements and a signed declaration, to verify the source of funds and the nature of the gift.

One of the most common questions that we get asked by first-time buyers is: Can parents gift money for a house deposit?

The answer: Absolutely. With a gifted deposit and the correct documentation to prove this – including a signed letter confirming the amount as a gift and that repayment is not expected – parents can help their children step onto the property ladder.

By understanding who can give a gifted deposit and ensuring that all gifted funds are properly documented, you can demonstrate a strong financial profile to your chosen lender. Clear records and a formal gift declaration reduce delays, improve lender confidence, and help maximise the positive impact of the deposit on your mortgage application.

What Proof Do Mortgage Lenders Need for a Gifted Deposit?

Lenders need to verify that a gifted deposit is genuine and not a loan. As such, lenders will require both evidence of the total gifted amount and confirmation that there is no obligation of repayment.  Providing this documentation is absolutely essential in any mortgage application that includes funds from a gifted deposit.

The three most common forms of proof a lender will require for a gifted deposit include:

• Bank Statement: Shows the transfer of funds from the donor to the buyer.
• Gifted Deposit Letter: Signed by the donor, confirming the amount and that it does not need to be repaid.
• Identification Documents: For the donor, such as a passport or driving licence, to verify the source of funds.

While the exact list of mortgage lenders who accept gifted deposits will vary, most high-street lenders and many specialist mortgage providers will consider them if all documentation is in order.

At Boon Brokers, our dedicated advisers have whole-of-market access and work with a wide range of lenders who accept gifted deposits. We will match you to a lender and mortgage product that best suits your financial needs, guiding you through the entire application to maximise your chances of mortgage approval.

What Should a Gifted Deposit Letter Include?

A gifted deposit letter is a crucial document that proves to your chosen lender that the funds provided are a gift and not a loan. The letter will typically include the name of the donor, total amount given, a statement to corroborate that the funds are a gift, and finally that there is no repayment required or subsequent equity in the property agreed.

The most important distinction that lenders will want to know and have proof of, is that any financial gift is not a loan. If the money is considered a loan, it increases your financial liabilities and risk in the eyes of the lender, which can affect your mortgage application, borrowing capacity, and even the interest rates offered.

A letter declaring that the funds are a gift and not a loan is therefore crucial to reassure lenders and ensure your application proceeds smoothly.

As we touched on above, when preparing a letter for a gifted deposit, the letter should clearly state:

• The amount being gifted.
• The full name and relationship of the donor to the buyer.
• Confirmation that the money does not need to be repaid.
• The intended purpose of the gift, such as helping the buyer secure a mortgage.
• Date of the gift and signature of the donor.

Knowing how to write a gifted deposit letter correctly ensures lenders have all the information they need, reducing delays in your application and giving them confidence in your financial backing.

At Boon Brokers, our mortgage advisers can provide guidance to help you meet your chosen lender’s criteria, ensuring that your gifted deposit letter meets lender requirements and strengthens your mortgage application.

Are There Any Tax Rules for Gifted Deposits in the UK?

In the UK, gifted deposits do not incur immediate tax. However, If the donor passes away within seven years, the gift will be considered a Chargeable Transfer, potentially making it subject to inheritance tax.

Importantly, everyone has an annual tax-free gift allowance of £3,000, meaning smaller gifts within this limit would be exempt from inheritance tax. Detailed guidance is available from HMRC on gifts and inheritance tax.

As we highlighted above, all gifted deposits must be properly documented. Lenders will expect a gifted deposit letter confirming that the funds are a gift and not a loan, while tax authorities may want records to verify that no repayment is expected.

What are the Alternatives to a Gifted Deposit?

While a gifted deposit can significantly boost your mortgage application, it isn’t the only way to improve your borrowing position. There are several alternatives that can help you secure a mortgage without relying on family support, each with its own benefits and considerations.

Each of these alternatives can provide a great alternative, depending on your financial situation and homeownership goals. While they may not all offer the same immediate boost as a gifted deposit, they can still increase your borrowing capacity and improve your chances of mortgage approval.

At Boon Brokers, our advisers can help you explore these options in detail, compare which approach best suits your needs, and guide you through the application process to make homeownership more achievable.

Get in Touch with a Mortgage Broker

Whether you’re a first-time buyer hoping to secure a mortgage with a gifted deposit, or a family member or friend planning to provide financial support, it’s important to understand how lenders view gifted deposits and what documentation is required.

At Boon Brokers, our dedicated mortgage advisers take the time to understand your financial situation, making sure that all mortgage advice is tailored to your needs.

Boon Brokers’ operates as a fee-free mortgage broker, providing unbiased guidance to help you find the best mortgage deals available today.

Contact Boon Brokers and receive expert mortgage advice today.