Gifted deposits: what you need to know…
If you are fortunate enough to be receiving money towards the purchase of your property, as a lot of first-time buyers are, it is important that everyone involved in the transaction is aware of the regulations that need to be complied with.
According to the Council of Mortgage Lenders (CML), in 2014, 52% of first-time buyers received help when buying a home, either from family or through government schemes such as ‘Help to Buy’; it can only be assumed that this percentage has increased in the last three years with property prices creeping higher and higher.
If using a lender, it is vital that you as a purchaser and the immediate family member gifting, are aware of the following:
- The property being purchased must be used to live in, and not letting
- Gifts towards deposits must only by gifted by immediate family members, such as parents or grandparents; lenders do not accept gifts from friends/unrelated third parties
- All law firms will require the following from those wishing to make gifts:
- A letter to the firm - which will clearly state the name of the relative, their address, full names of the purchaser(s) and the property intending to be purchased. The letter must state that the gift is non-repayable and that they will seek no interest whatsoever in the concerned property
- Identification from the relative – we will require either a passport or driving licence proof of identity from the relative making the gift and require them to come into our offices so that we can certify it. If a relative is unable to come into our offices for whatever reason, we ask that ID be certified by either another firm of solicitors, or using the Document Certification Service from the Post Office
- Source of funds from the relative - in the same way that a client must evidence their proof of funds for a purchase, so must the relative. We will need to a paper trail for the proof of funds that have been with the relative for at least the last six months preceding the transaction, and proof that they have reached our client
We understand that client’s might think that the above is intrusive, or ‘none of our business’, however it must be remembered that more often than not, when acting for a buyer, we are also acting for a lender and have a duty of care to them also. Because of the interest that the lender has in the property, they are entitled to know where any additional funds are coming from. We have a duty to make them aware of such, and therefore solicitors must be accountable. Because the relative is not technically a client, none of their personal information will be held on our case management system; however it is crucial that we have all of the above on file.