What are builders gift deposits and are they a good idea?

Answered on 12 December 2018

I've been looking at buying a house through Barratts. They said they will pay 5% toward my mortgage deposit, which is something called a builders guild deposit. I'm a first-time buyer, is this true?

I have been looking at the Barratt Homes offer and they will match any personal deposit you provide up to a maximum of 5% mortgage deposit of the purchase price. This is called a Builder's Gift deposit and will need to be declared when you make a mortgage application.

What Is A Gifted Deposit

In general lenders are happy to accept up to 5% of the purchase price as a Builder's Gift, so long as this is matched by 5% of your own personal funds. Experience has shown lenders that if a borrower has no personal stake in a property they are more likely to fall into arrears and not worry about possible repossession. What I would say is that there is a very limited choice of mortgages available at 90% of the property price and if you are able to put in a larger deposit you will get a far better choice of lender, interest rate and mortgage type.

Are There Risks With A Gifted Deposit?

You also need to be aware that there is normally a reason that builders make this kind of offer. It may be that they are having difficulty selling properties at the asking price without offering an incentive, in which case it possible the value of the property is judged to be lower than the purchase price and any mortgage offer will be based on this lower figure. If this happens you will need to find the difference from your own funds or negotiate a lower purchase price.

I recommend that you speak to an independent mortgage broker about the choices available to you and also to speak to your solicitor about the Builder's Deposit and any strings that may be attached.

Ask The Mortgage Experts answers are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them. We recommend you seek professional advice with regard to any of these topics where appropriate.