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If you've been gifted a property by a parent or other relative, you may be wondering if it is possible to get a mortgage, either freeing up equity or allowing you to build a property portfolio. Read on to learn all you need to know...
Can you put a mortgage on a gifted property?
Yes, and 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 home loans, meaning you will need to prove you’re creditworthy and can afford the repayments.
This means the lender will review your income, outgoings and credit history. As long as you and the property meet the lending criteria, you should have mortgage options.
If you're ready to begin your mortgage search, you can find your perfect mortgage in minutes with Teito! Use our free comparison service through more than 20,000 mortgage deals and get a mortgage in principle in minutes - get started here.
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 it is classified as an unencumbered property.
This means there are no existing debts on the property; you own 100% of the equity. As long as you meet the lender's criteria and the home is acceptable, you can potentially get a favourable deal. 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.
What if your parents are still living in the home?
Most lenders will expect your parents to move out of the property.
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.
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Reasons for mortgaging 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
Putting a mortgage on a gifted property means borrowing against its value. This would allow you to release funds from your home, without having to sell it. By doing this, you could 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 a property you were gifted 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, and most lenders accept this deposit source.
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 or you want to borrow a larger amount than what you can afford to repay on your current mortgage.
Finance a buy-to-let investment
If you're hoping to become a landlord or start a buy-to-let 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.
Read more about buy-to-let mortgages in our complete guide.
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.
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.
Tax implications
When gifting property, there are tax implications for both the giver and the recipient, if the recipient is planning to put a mortgage on the home after it has changed hands.
Inheritance tax
If the person who is receiving the property as a gift (a child or another relative) will live there for more than seven years, they will not pay Inheritance Tax on the gift after the giver dies.
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 (see below).
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.
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:
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You lived in the home the entire time as your primary residence
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You gift it to your spouse
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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.
Stamp duty
You may have to pay Stamp Duty Land Tax 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.
See our guide to stamp duty to find out when it is payable and how much your bill will be.
Why choose Teito for your gifted property mortgage?
At Teito, we're the online mortgage broker who gives you instant access to tens of thousands of mortgages on the open market. Find the best rates with professional advice tailored to gifted property mortgages, and secure an agreement in principle in minutes!
Here are just some of the reasons people choose us for their gifted property mortgage:
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Our brokers specialise in gifted property mortgages
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You can access the latest rates for them in seconds
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Exclusive deals are often available
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We are 5-star rated on leading review websites
Ready to compare the latest rates and take advantage of a free, no-obligation chat with a broker who specialises in gifted property mortgages? Get started here.
FAQs
Typically, mortgage lenders will require that you have owned the property for a minimum of six months before offering a mortgage.
That being said, it may be possible to find a financing option if the transfer ownership was less than six months ago.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.