Vendor Gifted Deposits
A Vendor Gifted Deposit is when the Vendor (Seller) of a Property is happy to gift part of the purchasers deposit within the equity of the property.
The Vendor has a property which they would like to sell. The Property is worth £100,000, but they would happily accept £95,000 for the property.
A First Time Buyer or a purchaser comes along and would like to purchase the property, but do not have a deposit.
As we know the property is worth £100,000 and the vendor is willing to accept £95,000, the vendor can gift the £5,000 difference between the market value, and the price they are willing to accept.
The purchaser would therefore obtain, in this example a 95% Mortgage (£95,000), based on the market value (£100,000). The Vendor would received the full price they required, and the purchaser would be able to purchase the property with no deposit.
Over the years the amount of lenders that allow this procedure has reduced and the rules have tightened, but there are still some lenders who will allow this on the basis they have firm evidence the vendor is happy to gift the deposit and that the market value of the property is accurate.
Builders Gifted Deposits
A Builders Gifted Deposit works in a very similar way to how the Vendor Gifted Deposit above works. However the only difference is that the builder is gifting the deposit, and that it applies to new build properties.
The builder would physically provide the deposit on completion to the Solicitor along with your mortgage money and deposit to make up the full purchase price of the property.
The minimum amount is 5% and usually with new build properties the overall deposit required is a little higher than a traditional first time buyer mortgage.
Finally it is worth mentioning a Family Gifted Deposit. This is simply a deposit provided by a family member. Most lenders will accept this, on the basis a letter is provided to the lender confirming that the gifted deposit is a gift, not a loan, and that the money does not need to be repaid. There is one exception to this rule in where the lender will accept a deposit from say a family member, then over a period of time, your monthly payments would contribute towards repaying the family member back.
If a Gifted Deposit Mortgage is something you are considering, or would like to find out more information, please get in touch with Mortgage Chain, as we are experts in this area, and have developed relationships with lenders and Solicitors over the years and understand this technical process fully.