How gifted deposits work - Mortgage Domayne

How gifted deposits work

September 30, 2023

Welcome to the finance update for the week ending 30 September, 2023.

It’s Grand Final weekend for AFL and NRL this weekend, and given Brisbane has a team playing off in both codes, there could be some sore heads walking the streets of Queensland come Monday!

The most recent inflation figures were released this week revealing a rise on the prior month which is a little disconcerting. Hopefully under new leadership, the RBA won’t be as trigger happy as they were under the control of the previous Governor.

In this week’s newsletter, we take a look at how banks treat gifted deposits, a scenario that has been steadily in the rise in recent years.

Accumulating a home deposit stands as a significant hurdle in the path to homeownership. Increasing numbers of parents are stepping in to assist their children in this endeavour as property values continue to rise and/or borrowing capacity is being eroded.

How does a gifted deposit function?

Should parents have the financial means and desire, they can boost their child’s deposit on a home purchase by providing a lump sum of money.

The bank may request a signed statement from the parents to confirm that the funds were gifted without any conditions. This assures the bank that the money isn’t intended for repayment, as this could affect mortgage serviceability.

Some lenders may request a letter from the gifting parents including the following details:

  • The gifted sum.
  • A declaration that the sum is a no-strings-attached, non-repayable gift.
  • A declaration confirming that the giver holds no stake in the property.

Who can provide a gifted deposit?

Typically, banks accept a gifted deposit from parents, though they may make exceptions for immediate family members like siblings, grandparents, or spouses.

If the lump sum is received from an extended family member, such as an aunt or uncle, there may be a need to explain the nature of your relationship to establish the gift’s unconditional nature.

Can savings with a gifted deposit?

Supplementing savings with gifted funds demonstrates financial discipline in regularly setting aside money. A gifted deposit alone doesn’t convey much about your capacity to save or manage a mortgage in the eyes of a bank.

If you have a client who is hoping to access a lump sum from their parents to boost their deposit, have them call us on 1300 366 296 to ensure that they understand the requirements, which differ from lender to lender.

Any changes in interest rates from last week are highlighted in orange.

Note – Increases announced by lenders as a result of RBA decisions normally take 1-2 weeks to come into affect.

Variable

The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.

1 Year Fixed

The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.