What is a Gifted Deposit?

The definition of a gifted deposit can be an important one for property investors to grasp.

In short, this means that someone has given you/gifted you, or paid the deposit on a property you are buying.

In the past using a gifted deposit was a very popular way of buying property. This was especially true if you were buying new build off plan developments where the developer/vendor would literally gift your deposit money back, so that, in effect, a lot of the time you would have none of your own money tied up in a deal. The concept is similar to a cash back on completion deal.

These days many lenders frown on this way of buying property because they like to see financial commitment from you as the buyer.

For example:

A big housing developer sells you a property for £150,000, but also, on paper, gifts you back 15%., which is £22,500, and equivalent to your deposit required. You get a mortgage for 85% LTV on the sale price, so your mortgage is £127,500.

Therefore, other than solicitors’ fees and any stamp duty etc., you have not had to pay any money to own this property, and occasionally the developer would pay for these additional fees as well, so you would truly have a no money down deal

These deals are not as wide spread as they used to be, and, even if you do think you spot one, tread carefully, as many times, when you analyse the deal more closely, it is not as good as it first seems. But saying that, you can still occasionally use gifted deposits to buy property, especially new build properties; it is just a case of finding them and doing extensive research to make sure it all adds up.

Even though this type of deal is mainly used when dealing with new build property, the methods used have also been tweaked and used by investors when they have been buying from an individual instead of directly from a developer.

Unfortunately, in the past gifted deposits were widely abused by both developers and investors, hence why many lenders will not lend to investors who plan to purchase in this way. And of the ones that will still lend, many of them will only lend up to 5%.

**Nothing on this website should be confused with financial or legal advice. If you need this, or any other type of advice, please seek the help of a competent professional. In addition, because real estate laws change all the time and differ from state to state, and even city to city in the same state, everything in these pages should be considered general marketing advice and ideas. Please see link to full Disclaimer at the bottom of this page.

Leave a Reply