Buying Property with Gifted Deposits

Most lenders will be happy to lend on property. With a commercial property, if the business acquiring them should fail, they should present an asset which would be easy to sell on - thus allowing them to recoup any losses they have made from the loan.

But despite this, lenders only very rarely will provide a loan covering the full cost of buying a property. They usually require a contribution from the buyer - a proportion of the purchase price, known as the deposit. This helps ensure that the borrower is completely committed to the property purchase - and that they cannot afford to simply walk away from it if their plans change.

The size of deposit required will vary with the lender and the type of property being purchased.

Homebuyers may be able to arrange a domestic mortgage with a relatively small deposit. First time buyers may be able to secure funding with a 85% or 90% loan. Historically, it has been possible to arrange 100% finance as a first time home buyer. This is because the sums involved on a first purchase is relatively small, and the domestic market may offer steady growth, reducing the risk for the lender. 

100% home buyers loans are not available from most lenders in the current market. 

Buyers of commercial properties face very different circumstances. The risk of a business failure is higher than the likelihood of a buyer being prepared to abandon their home, and to reduce the risk, lenders will insist on a larger deposit. This deposit will mean that if the business fails and the loan cannot be repaid, the lender will be able to recoup the money they have lent by selling the property, which is used as the security for the loan itself. They may pay any surplus funds realised by the sale to the borrower, but there will be no guarantee that the full amount of deposit will be returned. 

The level of deposit required will depend on the lender and the type of property being acquired. Investment property, such as buy to let homes bought with a commercial mortgage may need a larger deposit, typically 25% -35% while business premises that the borrower will use for their business may require a smaller figure. 

The deposit figure will always be individually agreed when the mortgage deal is negotiated. Factors like an imperfect credit record, for you or your business, could result in a higher level of deposit being required.

It may be possible to use a gifted deposit for a commercial purchase, but the position is usually more complicated. There may be a suspicion that money laundering is involved, and some special measures may be applied by the lender. 

Is 100% finance possible?

In some cases, it may be possible to arrange 100% finance for a commercial property, but usually this is only possible if some other asset is used to provide additional security. So to secure 100% funding on business premises, a borrower may have to put up their home as additional security. 

What is a gifted deposit?

A gifted deposit, as the name suggests, is one provided as a gift to the borrower. They are common in the domestic property market, especially for first-time buyers.

They can also be as large as someone chooses to gift. However, most lenders will look very carefully at the source of a deposit, and may be concerned when the deposit is a gift. The worry is based on affordability. Most first time buyers will stretch themselves financially, and if the gifted deposit is actually a loan, which will need to be paid back, they may face difficulty with affording their mortgage obligations.

The usual practice with a gifted deposit is for the giver to provide written confirmation that the deposit is a gift, rather than a loan. There can be some tax implications if this is done.

Gifted deposits for commercial mortgages

Providing a deposit as a gift for a first-time homebuyer is relatively routine.  Providing a gift for a deposit with a commercial mortgage is less common.

While it may be possible for a generous relative or friend to support a fledgling business by providing a deposit, the assumption will always be that the deposit is actually an investment in the business rather than a straightforward gift - or being used to 'launder' money obrianed as the proceeds from crime.

While affordability is not calculated in the same way with a commercial mortgage as it is with a domestic mortgage, this will complicate the lender's calculations - and some lenders may refuse to risk being seen as complicit in money laundering. 

Lenders may ask why the business has not been able to generate sufficient capital for the deposit itself, and this may mean questions about the viability of the business, and its suitability for a loan.

Lenders may appreciate that many families will be keen to support enterprise by their younger members, and have the resources as well as the willingness to do so. But they may be restricted in the view they can take because of the rules they work to. A large deposit may even be seen as evidence of a defacto partnership in the business, which will mean that the owner will not be solely responsible for the payments - this can complicate the position for the benefactor, as well as for the business owner. 

If your business property purchase plans depend on any form of gifted deposit, you may need expert help to secure the funding you need.

Getting the help you need with a gifted deposit from Rangewell

The existence of a gifted deposit is likely to cause problems when it comes to making an application for a commercial mortgage.

At Rangewell, our mortgage service is based not only on knowing all the mainstream UK commercial lenders' criteria but also on our ability to access bespoke mortgages for non-standard and unusual situations.

So if your commercial mortgage plans include some complicating factors - such as a gifted deposit or a damaged credit history, we can use our expertise to help find solutions to them for you.

When a gifted deposit is part of your business property purchase plans, we can offer several ways to overcome the objections lenders may have. 

One answer is to work closely with lenders who are most likely to be receptive to this kind of funding. There are many lenders who will be prepared to advance finance when it can be secured on commercial property. The risk to the lender is low, because the value of the property is generally stable. It is therefore a popular asset for both short and long term lending. Knowing which lenders are most receptive to applications working in particular sectors can be key to securing offers of funding swiftly. 

We may be able to help the lender agree to countenance the deposit if the person gifting it to you can provide personal documents to the lender. Documents include a photo ID, such as a driving licence or passport and proof of address, such as a bank statement or utility bill. Some lenders and solicitors may also make it mandatory to provide bank statements. This is so they can check how the funds for the gift have accumulated. Your friend or family member needs to provide such documents to comply with anti-money laundering regulations. Your solicitor will also request such documents.

We can also offer expertise with negotiation. Unlike a residential property purchase, commercial property funding rates are based on an individual assessment both of the value of the property and the potential of the business. Inevitably, rates will vary substantially between different lenders, We frequently negotiate with lenders to secure the lowest rates and the most favourable terms.

This has helped us develop an understanding of the approaches of various lenders, and to identify those who will be most likely to find ways to accommodate a gifted deposit.

We will work to find the lenders who can agree to a gifted deposit - and help ensure that those we approach will overcome any doubts they may have.

In some cases this may mean a personal approach to a decision maker.

Of course, even with a gifted deposit, it is still important to get the right mortgage deal. Buying any business property involves high costs, and it is important to have expert help.

Rates are always crucial. Even a fraction of a percentage point in the agreement can make a substantial difference to what you will actually repay each month. But it is also vital to fully understand applicable fees and penalty charges.

Borrowing can be made more challenging still by the fact that there are many different lenders who may be prepared to offer funding. Each has their own approach to interest rates and fee arrangements, and comparing them all may require expert knowledge to fully understand what is really being offered.

At Rangewell, we work with lenders across the market - and we can call on the expert knowledge you need.  It lets us ensure that you have the financial solutions you must have when you are considering a business purchase. Our knowledge can not only help you secure the funding you need - it can save you a great deal of cash.

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.