Using a Family Gift Towards Your Deposit: What UK First-Time Buyers Need to Know

<p>For many first-time buyers in the UK, the biggest barrier to homeownership isn't the mortgage — it's saving the deposit. That's why gifted deposits from parents, grandparents, or other family members have become increasingly common. In fact, the Bank of Mum and Dad is now one of the largest informal mortgage lenders in the country.</p><p>But accepting a family gift towards your deposit isn't as simple as having the money land in your bank account. Lenders have specific requirements, and if you don't follow the right process, it can delay or even derail your mortgage application.</p><p>Here's everything you need to know.</p><h2>What Is a Gifted Deposit?</h2><p>A gifted deposit is money given to you by a family member (or sometimes a close friend) to use towards buying a home. The key word is <strong>gifted</strong> — lenders require that the money is a genuine gift with no expectation of repayment. If there's any suggestion it's a loan, even an informal one, lenders will treat it very differently and may decline your application.</p><p>Most lenders accept gifted deposits from:</p><ul><li>Parents or step-parents</li><li>Grandparents</li><li>Siblings</li><li>Other close family members</li></ul><p>Some lenders are more restrictive and only accept gifts from immediate family. A small number will accept gifts from friends, but this is less common and may require additional checks.</p><h2>How Much of Your Deposit Can Be a Gift?</h2><p>This varies by lender. Some will accept a gifted deposit that makes up 100% of your deposit — meaning the entire deposit is a gift. Others require you to contribute a minimum amount yourself (typically 5% of the purchase price).</p><p>If you're applying for a high loan-to-value (LTV) mortgage — for example, a 95% mortgage where you only have a 5% deposit — some lenders will require that at least part of that deposit comes from your own savings rather than a gift. It's worth checking the specific requirements of the lender you're applying with.</p><h2>The Gifted Deposit Letter</h2><p>This is the most important document in the process. Your lender will require a <strong>gifted deposit letter</strong> (sometimes called a gift letter) signed by the person giving you the money. It must confirm:</p><ul><li>The full name and address of the person gifting the money</li><li>Their relationship to you</li><li>The exact amount being gifted</li><li>That the money is a gift and not a loan</li><li>That the donor has no interest in the property and will have no right to live there</li><li>That the donor does not expect repayment at any point</li></ul><p>Your mortgage broker or solicitor will usually provide a template for this letter. It needs to be signed before your mortgage application is submitted.</p><h2>Source of Funds Checks</h2><p>Your solicitor — and sometimes your lender — will carry out <strong>source of funds checks</strong> on the gifted money. This is a legal anti-money laundering requirement. The person gifting the money will need to provide evidence of where the money came from, such as:</p><ul><li>Bank statements showing the funds have been held for a period of time</li><li>Evidence of savings, investments, or pension withdrawals</li><li>Proof of inheritance or property sale proceeds</li></ul><p>The more straightforward the source of funds, the smoother the process. If the money has recently arrived in your donor's account from an unclear source, expect more questions.</p><h2>Inheritance Tax Considerations</h2><p>If the person gifting you money passes away within seven years of making the gift, it may be subject to inheritance tax under the UK's "seven-year rule." Gifts made more than seven years before death are generally exempt from inheritance tax.</p><p>There are also annual gift exemptions — each person can give up to £3,000 per year free from inheritance tax. Larger gifts are potentially exempt if the donor survives for seven years.</p><p>This is a complex area and the rules depend on the size of the estate. If the gift is substantial, it's worth the donor taking independent financial advice.</p><h2>When Should the Gift Be Transferred?</h2><p>Timing matters. Most lenders want the gifted funds to be in your bank account before the mortgage application is fully processed, so they can see it on your bank statements. Some lenders are happy for the money to be transferred at exchange of contracts or completion — but you need to confirm this with your lender or broker in advance.</p><p>As a general rule: the earlier the money is in your account and visible on your statements, the fewer questions you'll face.</p><h2>Does a Gifted Deposit Affect Your Mortgage Application?</h2><p>Having a gifted deposit doesn't negatively affect your mortgage application, provided you follow the process correctly. Lenders simply want to understand the full picture of where your deposit is coming from.</p><p>What can cause problems:</p><ul><li>The gift letter is missing or incomplete</li><li>The donor can't provide clear evidence of where the money came from</li><li>There's any suggestion the money is a loan rather than a gift</li><li>The funds arrive in your account shortly before the application with no explanation</li></ul><h2>Can the Donor Live in the Property?</h2><p>No — and this is a firm requirement. The gifted deposit letter must confirm that the donor will have no right to live in the property and has no financial interest in it. If a parent is gifting money and also planning to live with you, this changes the situation entirely and needs to be disclosed to the lender upfront. Some lenders will not proceed in this scenario.</p><h2>Practical Steps to Follow</h2><ol><li><strong>Talk to a mortgage broker early.</strong> Before the money moves, confirm which lenders your broker is considering and what their specific gifted deposit requirements are.</li><li><strong>Get the gift letter drafted.</strong> Your broker or solicitor can provide a template. Make sure it covers all the required points.</li><li><strong>Transfer the funds in good time.</strong> Aim to have the money in your account at least two to three months before you apply, if possible.</li><li><strong>Keep a paper trail.</strong> The donor should keep bank statements showing the funds leaving their account. You should keep statements showing them arriving in yours.</li><li><strong>Inform your solicitor.</strong> They will need to carry out their own source of funds checks as part of the conveyancing process.</li></ol><h2>Frequently Asked Questions</h2><h3>Can I use a gifted deposit alongside my own savings?</h3><p>Yes — in fact, this is the most common scenario. Many buyers use a combination of their own savings and a family gift to reach the deposit amount they need.</p><h3>Does the gift need to be declared on the mortgage application?</h3><p>Yes, always. Failing to disclose a gifted deposit is considered mortgage fraud. Lenders will ask directly whether any part of your deposit is a gift, and you must answer honestly.</p><h3>What if the donor wants the money back one day?</h3><p>If there is any expectation of repayment — even an informal understanding between family members — it is legally a loan, not a gift. You must declare it as such. Some lenders will accept family loans under certain conditions, but the rules are different and more restrictive.</p><h3>Can I get a mortgage with a 100% gifted deposit?</h3><p>Yes, some lenders allow this. You will typically need a good credit history and a stable income. The lender will still require the gift letter and source of funds checks.</p><p>A gifted deposit can be a genuinely life-changing contribution from family. Getting the paperwork right from the start means the process runs smoothly — and your family's generosity translates directly into the keys to your first home.</p>