Posted on 25.10.16
Buying a house can be a stressful and expensive time, from rising house prices to admin fees. It is not surprising that so many buy with help from their parents. However, the combination of family members and large quantities of money can present problems.
What is a gifted deposit?
When you are in the process of buying a house using a deposit, your conveyancer will ask if you are using a gifted deposit, which is a sum of money given to you by family or a third party, to be used towards financing your property purchase. Whilst this can make all the difference to some property buyers by guaranteeing that they secure their chosen property, gifted deposits can be complicated by who you can accept money from, and the proof you need to supply your lender with.
This money is then subject to checks, where it has come from, how it has been accumulated, along with the identification of the person gifting you the money. This allows a conveyancer to carry out anti-money laundering searches, which are essential and need to be done if you are using a gifted deposit.
Due to the complications that can arise when using gifted deposits, some people consider declaring that the money is savings or has come from somewhere other than a gift, but the reality is that in-depth anti-fraud checks are carried out, so if you do lie, you’re guaranteed to be caught and the consequences can be severe.
What are the consequences for misleading your lender?
Gifted deposits must absolutely be declared to a lender. Failure to do so, constitutes a breach of their mortgage conditions, the lender could demand immediate repayment of the loan or start a legal action against the Borrower.
The requirements are, in addition to the anti-money laundering regulations, to ensure that the Donor does not become entitled to have a beneficial interest in the Property. It is also usually a restriction (condition) in the mortgage that all balance funds come from the borrowers own resources without recourse to further borrowing.
If the gift is not a true non repayable gift and it is to be repaid on the sale of the property, then lenders will consider it, but usually they require that the funds to be a genuine gift of ‘love and affection’.
Top tips for making the process easier:
- Tell your conveyancer at the earliest opportunity after an offer has been accepted.
- Provide evidence of where the money comes from, to prove that it was earned legitimately, because it is a requirement from both the giver and recipient, and may include bank statements and a detailed summary and evidence of how the money was accrued.
- Make sure you have the correct proof of identification, photocopies are not acceptable unless they are properly certified by a person regulated by the Financial Conduct Authority. The availability of Identification documents could cause problems and delays to your transaction if the person giving the gift is abroad or otherwise unavailable.
- Provide evidence to your conveyancer and mortgage broker/ independent financial advisor that the money is a gift to either one or both parties (if a joint purchase) and not a loan.
If you are purchasing a property in this way, it’s important to speak to legal experts who are fully aware of this type of transaction. You can also see our page for more information. Call Gorvins on 0161 930 5117 or e-mail email@example.com for more information