Are you a potential first-time buyer struggling to save for a deposit on a property? You’re not alone. Gifted deposits are helping thousands of buyers get onto the property ladder sooner. Later life lending expert Les Pick explains how they work.
With the cost of living currently making it harder to save, many buyers are turning to family members for financial support to help contribute towards a deposit. The “Bank of Mum and Dad” is now estimated to contribute around £9.7 billion every year in the UK.
A gifted deposit is one of the most common ways families can help loved ones buy a home. But how does it actually work, and what do lenders require?
Simply put, a gifted deposit is money given – usually by parents or grandparents – to help someone buy a property. It can either cover the full deposit or top up existing savings.
In many cases, it can make a significant difference. For example, increasing a deposit from 5% to 10% may mean that a buyer can obtain a better mortgage rate and therefore have lower monthly payments.
Across the UK, the average gifted deposit is around £50,000 per child, rising to £60,000–£100,000 in areas like Surrey and London, where property can be more expensive.
Why are gifted deposits so popular?
There are a few key reasons why gifted deposits have become so common:
- Affordability challenges: The average first-time buyer is now around 35 years old
- High rental costs: Many families want to help loved ones escape the rental cycle
- Seeing the benefit sooner: Grandparents often prefer to gift money during their lifetime rather than later
In some cases, the funds may even come from equity release or a lifetime mortgage on a family property.
Who can gift a deposit?
Gifted deposits are most commonly provided by:
- Parents
- Grandparents
- Close family members
Lenders typically prefer the gift to come from an immediate family member, although some may accept gifts from extended family depending on the circumstances.
A gifted deposit must be a genuine gift. The person providing the funds must confirm in writing that the money is a gift and not a loan to be repaid. They must provide a “gifted deposit letter” typically containing their name and address, their relationship to the buyer, the amount being gifted and the address of the property being purchased.
Proof of funds
In addition, they must provide proof of funds. Lenders need to see where the money has come from – this could include:
- Bank statements
- Savings accounts
- Pension withdrawals
- Proceeds from property or investments
In many cases, funds are transferred directly to the solicitor rather than passing through the buyer’s account.
Not all parents are comfortable sharing full financial details with their children, especially if they have more than one child and are only helping one at this stage.
However, some level of financial transparency is required to satisfy lender and anti-money laundering checks. A good mortgage adviser can help manage this process sensitively.
