Gifted Deposit Mortgages- What you need to know

A meticulous office scene depicting a cluttered desk filled with financial documents, bank statements, and legal papers, a computer displaying financial charts, and an open safe with cash and property deeds in the background, emphasizing the detailed process of auditing for a gifted deposit mortgage.

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The genesis of this article stemmed from a case where a client consolidated various funds for a gifted deposit mortgage into one account. Contrary to their expectations, this move created an administrative nightmare and nearly pushed the family to the brink, as the document requirements ballooned with the discovery of additional fund sources. The crux of the issue is this: when money has been gifted for a mortgage deposit, or if funds come from various sources, all parties involved must fully understand the origin of these funds—how they were generated and transferred to the applicant. This necessity is driven by UK Money Laundering regulations.

In this post, we explore the intricacies of money laundering regulations, lender expectations, and obligations, and we provide tips to simplify the mortgage application process. The simplest advice is this: do not move the money until it is absolutely necessary.

However, life is rarely straightforward. Many banks offer scant loyalty rewards to existing customers, prompting savvy savers to transfer funds to accounts offering better interest rates. It’s wise in the long term, but it’s important to know that every transfer will prompt lenders, solicitors, and brokers to request bank statements showing the money’s prior location and the corresponding credit in another account. They need to ensure that dates, times, and account details align. Some internet bank accounts may not provide this level of detail readily or issue timely statements, which could delay the mortgage application. This caution applies even to those buying with their own savings.

Money laundering involves disguising the proceeds of crime to make them appear legitimate and affects serious crimes such as drug trafficking and human smuggling. Defined under the Proceeds of Crimes Act 2002 (POCA), money laundering can also intersect with bribery and corruption, particularly concerning individuals in positions of significant control.

Lenders, solicitors, accountants, and brokers are not investigators of these crimes; however, they are obligated to report anything suspicious and must provide a thorough audit trail. Should the police investigate someone, they need this trail to trace the money back to its source. Criminals, understanding the stakes, often go to great lengths to obscure the origins of funds, particularly through property purchases. Maintaining a detailed audit trail is crucial to prevent blending illicit funds with legitimate gifts and savings.

What does this mean for your gifted deposit mortgage? The critical factor is that every transaction necessitates two corresponding statements. The more transactions you have, the more verification is needed. Every movement of funds could trigger additional documentation requirements tracing back to the original source. For family gifts, it’s also worth noting that donors may be uncomfortable with extensive scrutiny of their finances. By not transferring funds prematurely, you minimize the need for an extensive audit trail.

Therefore, the recommendation is clear: if you plan to accept a gift from multiple sources for a gifted deposit mortgage, instruct those sources to leave the money where it is. Likewise, keep any personal funds static if feasible. Less movement results in fewer linked accounts and a smoother verification process by lenders. Typically, donors will be asked to provide a letter declaring that the gift is just that—a gift with no repayment expected and no stake in the property.

In conclusion, it is far easier to assess multiple pots of money that have remained static for an extended period than to assess a single pot that has received contributions from many different sources. Donors can transfer all parts to the solicitor’s client account just before completion, or they can consolidate them at the last minute. This approach enables the solicitor to perform their due diligence while keeping the administration of the audit trail as straightforward as possible.



Picture of Author: Stuart Phillips

Author: Stuart Phillips

Fully CeMap qualified, Directly Authorised by the FCA and with over a decade of experience, Stuart has a wealth of experience in both specialist BTL and residential mortgages.

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