Gifted Deposits: What are they and how they work for expats
An explanation of gifted deposits for expats looking to purchase property and secure a mortgage.
Written by About Gorvins Solicitors on 17 August 2015
In recent years, the recession and subsequent 'financial crisis' has resulted in most of the big banks becoming cautious with regards to lending, particularly on mortgages.
For many people who had not yet made it onto the property ladder, these new restrictions have meant it has become increasingly difficult to do so. The light at the end of the mortgage-less tunnel for those who are privileged enough, has been the generosity of immediate family members, particularly parents, who are able to offer a financial helping hand.
With 5% mortgage deposits a distant memory, parents who can afford to help their children financially have been a godsend in a world where the prospect of a 10% deposit as a minimum has rendered owning their own home a pipe dream. Gifted deposits, however, are slightly more complex than savings deposits, and become even more so when the parents involved are gifting the money from overseas.
When prospective buyers save up for a deposit themselves, it shows a level of financial competency that lenders look upon as favourable - if you can commit to putting aside a sum of money each month for a designated purpose, then it shows strong signs of financial stability and organisation. When a deposit is gifted by parents, or grandparents, this indication is taken away to a large extent, which essentially removes part of the lender's ability to tell whether or not you are financially responsible and ready for such a large commitment as a mortgage.
This is why further steps often need to be taken so that the lender is able to be confident in your ability to meet payments despite not having saved for your own deposit.
There are two ways of gifting a mortgage deposit; equity gifted deposits and cash gifted deposits.
The most common form is the cash gifted deposit, whereby a family member gifts you the cash for your deposit to help you purchase your new home. The vast majority of lenders will now accept family gifted deposits as standard, as it is estimated that as many as 4 in 5 first time buyers are receiving help from their parents to secure their first house purchase. Despite this being such a regular occurrence, lenders will usually require a letter from the family member who has gifted the money to ensure that it is clear that the money isn’t a loan. From a legal perspective, it is likely that the solicitor who is working on the purchase on your behalf will also require additional documents by way of ensuring that the money gifted was indeed a gift.
This means that the party giving the money has no legal rights to the property, and usually includes ID from those giving the money, a signed letter to confirm that they don’t expect the money back, and a series of anti-money laundering checks to attest to where the money came from.
If you’re currently living abroad and looking to gift your child a deposit when they still live in the UK, there may be further complications, although it is actually much more straightforward than many expats believe it to be. As long as you still have a UK bank account and the usual process of confirming a gifted deposit is followed, there are actually no further steps that you need to take, although you will want to consider the potential costs of transferring currency in such large sums.
The lender will usually ask that the funds that you are intending on gifting to your child are available in a UK account prior to commencing the process. A statement from both the UK account and the account abroad will need to be provided to comply with the anti money laundering checks, and the rest of the process will largely remain the same. If, however, you do not have a UK bank account, the process will usually not be possible as it is likely that the anti money laundering checks will not be passed in this instance.
If you would like to find out any more information about helping your child to buy their first home, you can find more information using this first time buyers guide from Gorvins.