You've been working really hard to save up for a deposit to put down on a property, but you just can't quite get there.
So, your relatives or friends may decide to help you out by giving you some money.
Receiving financial help in this way can be really useful, but can it affect the rest of the mortgage process?
In this blog, we will explain everything you'll need to know about gifted deposit mortgages.
What are gifted deposits?
Gifted deposits refer to money that has been given to you (by a relative or friend), which you will put towards buying a house.
It may be that they give you the entire amount or they might just contribute a bit to help get you closer to your target.
The most important thing about these deposits is that, as the name suggests, the money is a gift. This means that the recipient must not be expected to repay any of it back. In other words, it is not a loan.
With house prices continuing to rise, this type of financial help has been steadily growing in popularity and has been a lifeline to many people, who otherwise may have been unable to get on the property ladder at all.
Are there any rules on who it can be from?
Generally, any person could give you money towards a deposit. However, when it comes to getting your mortgage approved, lenders may be a bit hesitant if it did not come from a family member.
Some high street lenders may not accept them at all, regardless of the person who provided the money. Therefore, it is important that you ask if you are likely to be accepted before applying with a particular lender.
Speaking with a specialist mortgage advisor could also help you understand what options are available to you, as the lenders they deal with are more flexible when it comes to complex circumstances.
How to boost your chances of getting accepted?
There are some steps you can take to improve your chances of getting accepted.
First, it is important that you can prove to lenders and other providers that the money is not a loan. This can be achieved through a gifted deposit letter. Although this may sound complicated, it's actually very easy to do.
All you need to do is get a letter from the individual stating that it is not a loan, and so no repayments will need to be made from you.
Additionally, they will need to highlight that they understand they will have no legal ties to the house being bought.
By receiving this type of letter, it gives lenders the reassurance they need to progress through to the next steps of the application process.
Further to this, the individual who provided the money will need to verify their identity to the lender. Therefore, some other documents will be needed. This includes:
- Photo identification
- Statements which prove and show their current address.
- Banking statements indicating where the money for the deposit has come from.
General steps:
There are some other steps you can take yourself to boost your chance of getting accepted for a mortgage. This may include:
- Work on building a positive credit history
- Get on the electoral register
- Reduce your spending habits prior to applying
What to do if the lender rejects your application?
It can be very stressful if your mortgage is declined, but the most important thing to remember is that every lender has different criteria. So, although you've been rejected by one lender, that doesn't mean to say you won't get accepted elsewhere.
Specialist mortgage brokers are there to help with situations of this nature, and therefore they are able to find a lender that you are likely to be accepted with.
Are there any alternatives you can use to help you buy a house?
Getting financial help from family members and friends is not the only method you can use to boost your chances of owning a home.
An alternative method you might want to consider is getting a lifetime ISA. If you open up an account and put savings into it, then the government will give you a bonus based on the amount you save. It's a really useful way to help you save up money to buy a house, which doesn't involve any of your loved ones.
Another tactic that could be used is to get a guarantor. A guarantor is someone who agrees to make your repayments if you default on your loan. This can give lenders a bit of extra security, meaning that they may be more relaxed with their criteria, which could increase your chance of getting accepted.
Finally, a shared ownership mortgage can make getting on the property ladder easier. With this method, you can buy a share of the house, rather than buying the whole property. The rest of the house will be owned by a landlord.
Summary
To sum up, gifted deposits can be a really useful way to help you get on the property ladder, but it can make getting approved for a mortgage a bit more complex. Despite this, there are still lots of options available to you, which can help you get approved and allow you to buy your dream home.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
