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Purchasers receiving gifted deposits towards a residential property purchase
A gifted deposit is a sum of money that is given by a family member, towards the purchase of a property.
We are seeing increased numbers of buyer’s having the benefit of receiving financial help from family members, and even friends in some instances.
Sometimes, the only way a number of people can buy a home is with the assistance of financial contributions from relatives or friends. Gifted deposits sometimes referred to as the “bank of mum and dad” have become the only route for many new homeowners. Most mortgage lenders are now comfortable with gifted deposits and are aware that this is becoming increasingly popular. Lloyds Bank calculated on average parents’ gifts approximately £8 billion a year in helping their children buy a home.
Accepting money by way of a gift means that the broker, lender and lawyer have to follow a certain process to confirm the gift. It needs to be established that the financial contribution is a gift and both parties need to acknowledge there will be no repayment of the funds.
When asking a purchaser how they are funding the purchase price, it is best that we obtain information regarding the gift element at the outset. The buyer really needs to be completely upfront and clear about the arrangements.
This is in order to ensure that the mortgage broker, the mortgage lender and the lawyer have the same information and understand where the gifted monies are coming from. If there is any doubt or confusion in relation to where the purchase monies originate from, then this could potentially slow the conveyancing process down.
Each party involved in the conveyancing process, plays a vital role to ensure that the situation is clear:
- The mortgage broker will need to be aware of the contribution at mortgage application stage, so that the mortgage lender will be aware of the position at the outset and ensure that the correct mortgage offer is issued.
- The lawyer will need to establish that the person(s) providing the gifted deposit will not have any interest in the property and confirm this to the mortgage lender. The lawyer will also report to the mortgage lender that they are aware of the gift, they have a signed letter from the confirming the monies being provided are by way of gift, not subject to repayment and they will hold no interest in the property.
- The mortgage lender will need to review the situation as a whole, and decide whether they wish to lend in the circumstances.
As lawyers usually act for both the mortgage lender and the buyer, there is information that the buyer, or the person providing the gift and the lawyer needs to provide:
The buyer will need to:
- Inform the lawyer at the outset of the fact they are receiving a financial contribution
- Provide evidence of the gift – the buyer will be asked to provide evidence of source of funds to show where the deposit is coming from. Usually this is shown as a transfer on a bank statement.
The person providing the gift:
The lawyer will contact the person providing the financial contribution directly. This is to make them aware of the fact that the monies are a gift, that the monies are not repayable at any time and if they are unsure or think differently, they must seek independent legal advice.
As lawyers, we will request the following information:
- Certified ID from the person providing the monies –certified ID in the form of a passport/driving licence in order to confirm the giftor is the person providing the gift.
- Bank statements – Due to anti money laundering legislation the lawyer will need to check to show the deposit monies have been earned legitimately, normally this is from an accumulation of savings and bank statements will support this as evidence.
In order to ensure a smooth transaction, it is imperative that buyers are clear about where the purchase monies originate from. That way we can obtain the correct information at the outset, and report the details fully to the mortgage lender. This will in turn prevent delays occurring further down the line.
As always, if you have any questions on this issue do please get in touch with a member of the team.