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Can I mortgage a gifted property?
Suppose you've been gifted a property by a parent or other relative. In that case, you might be wondering if it is possible to get a mortgage, either freeing up some of the equity or allowing you to build a property portfolio.
In theory, getting a mortgage on a gifted property is the same as if you were applying for any other mortgage deal. Most mortgage lenders use the same criteria when determining mortgages for gifted properties as they do with other mortgages, meaning you will need to provide evidence that you can afford the mortgage payments. This means that your mortgage lender will consider your income, outgoings and living expenses. As long as you and the property meet the lender's criteria, you should be able to get a good deal.
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What about gifted deposits?
With a gifted deposit, instead of transferring property or transferring ownership, you're actually gifting money to help towards a deposit. This is on the basis that the money is not a loan that needs to be repaid. Gifted deposits are a common way for family members to help their children get on to the property ladder.
However, there are a number of things you need to consider if your family member wants to gift money towards your deposit. Firstly, gifted deposits are becoming more popular, so many lenders have added qualifying criteria around their applications. This means that not all lenders will accept gifted deposits, so you should check with your lender before accepting a deposit.
You will also need your family member to sign a declaration confirming that the money they are gifting is a gift and not a loan.
Why is gifting property becoming more popular?
More people are choosing gifting property to a family member as an option because you can avoid many of the tax implications that arise when you buy, sell or transfer property.
In fact, gifting property to a family member is becoming increasingly popular as an alternative to a gifted deposit.
How does a gifted mortgage work?
A gifted mortgage works the same as any other mortgage, with the difference being that you already own the property so is classified as an unencumbered property.
This means there are is no existing debt on the property; you own 100% of the equity. As long as you meet the lender's criteria and the home is acceptable, you should get a great deal on your new mortgage. As with any other mortgage, lenders will be concerned with the purpose of the loan, affordability and income, existing financial commitments and your credit history.
Can my parents keep living in the home?
Unfortunately, most lenders will expect your parents to move out of the home.
The reason is that the property must be as a gift, without any benefit retained, to be acceptable. That being said, there are some niche lenders who may consider a situation where parents continue to remain at the property in some way.
Reasons for raising a mortgage on a gifted property
There are various options when it comes to freeing up equity from a gifted home. Typical reasons people with gifted properties consider getting a new mortgage include:
Releasing equity from your home.
Allowing you to release funds from a home, without having to sell it. This means you can raise cash for bigger purchases such as buying another property or setting up a business.
Helping out children or family members with a deposit.
If you're looking to help children or family members to raise their own deposit to buy a home, getting a mortgage on your home could be a good option. It allows children or family members to get onto the housing ladder without having to wait until they can save up for a large enough deposit.
Freeing up cash to buy a new home.
If you're looking to purchase a new home, freeing up some of the funds in your current property can help. This may be because you don't have enough funds for the deposit needed or you want to borrow an amount that is larger than what you can afford to repay on your current mortgage loan.
Finance a buy to let investment.
If you're hoping to become a landlord or start a BTL portfolio, it could be worth considering raising a mortgage on your gifted property. This is because if you already own the property, the funds released can be used for purchasing another rental property.
Buying a holiday home.
If you're looking to buy a holiday home, freeing up some of the equity in your current property can help. This could be because you're looking to borrow more than you can afford with your current mortgage, or save up for a larger deposit.
Using the equity in the gifted property to fund other investments.
If you already own the gifted property, releasing some of the equity can allow you to invest in other financial products such as stocks and shares.
Paying for an extension or renovation works.
If you're looking to carry out some renovation works or extend the home, releasing equity may be an option. This is the case if you don't want to sell your existing property, but want to raise money for building work.
Will I need to pay inheritance tax?
The answer is, it depends. If the person you gift the property to (your child or another relative) will live there for more than seven years, they will not pay Inheritance Tax on the gift after you die.
If you're considering gifting property but concerned about inheritance tax, it's important to understand that capital gains tax will still apply when the property is sold.
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What is capital gains tax?
Capital gains tax is a type of tax that you pay when you sell an asset, such as a property.
It is charged on the profit you make from selling something. In most cases, this tax is paid by the buyer of an asset, but in some situations, it will be due when you sell the property yourself.
Will I need to pay capital gains tax on gifted property?
If you gift property, you will typically need to pay CGT if the property has increased in value since you bought it.
You'll be pleased to hear that there are situations where you don't need to pay CGT:
- You lived in the home the entire time as your primary residence
- You gift it to your spouse
- You place the property in trust for the benefit of your child. If your child sells the property in the future, they will then be liable for Capital Gains Tax.
Will I need to pay stamp duty?
The answer is, it depends.
You may have to pay Stamp Duty Land Tax (SDLT) if the ownership of land or property is transferred to you in exchange for any payment (or 'consideration'). Whether or not you'll need to pay stamp duty will depend on the specific situation and the person gifting.
Can I get a mortgage if I've owned the property for less than 6 months?
Typically, mortgage lenders will require that you have owned the property for a minimum of 6 months before offering a mortgage.
That being said, it may be possible to find a financing option if the transfer ownership was less than 6 months ago.
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