Gifted Equity Mortgage FAQ
General information only. This is not financial advice.
Last reviewed: 2026-06-06
What is gifted equity in a mortgage context?
Gifted equity — sometimes called a concessionary purchase — occurs when a property is sold below its market value, with the difference between the asking price and the market value treated as a 'gift' of equity by the seller to the buyer. This most commonly happens within families: parents, grandparents, or other close relatives sell a property to a family member at a discounted price. For example, if a property is valued at £300,000 and the seller agrees to sell it for £240,000, the £60,000 difference is gifted equity. Importantly, gifted equity is not the same as a gifted deposit: a gifted deposit is cash given to help fund the purchase price, whereas gifted equity is a reduction in the purchase price itself. Lenders treat these differently, and it is important to specify which applies to your situation when speaking to a broker or lender.
How do mortgage lenders calculate LTV on a gifted equity purchase?
Most lenders who accept gifted equity purchases calculate loan-to-value (LTV) against the market value of the property rather than the lower purchase price. This is significant because it means you can potentially purchase with a very small or zero cash deposit and still achieve a favourable LTV. Using the earlier example: if a property is valued at £300,000 and you are purchasing for £240,000, and you are borrowing £240,000 (the full purchase price), the LTV based on market value is 80% (£240,000 / £300,000) — not 100%. The gifted equity of £60,000 (20% of market value) functions as your effective deposit. Not all lenders take this approach; some insist on calculating LTV against the lower purchase price, which requires you to contribute additional cash to achieve an acceptable LTV. Confirming a lender's policy before proceeding is essential.
Do I need a cash deposit if I am buying with gifted equity?
Not necessarily — if the gifted equity is sufficient relative to the market value of the property. In the example above, the £60,000 gifted equity represents 20% of the £300,000 market value, which gives an 80% LTV when borrowing the full purchase price. Many lenders will accept this without any additional cash deposit, provided the gifted equity represents at least 5–10% of the market value. If the gifted equity is smaller (for example, a 5% discount on market value), you may need to add cash to bring your effective deposit to the lender's minimum. Some lenders require a minimum cash contribution from the buyer in addition to the gifted equity — typically to evidence that the buyer has the financial capacity to fund the purchase independently. Your broker will be able to identify which lenders require a cash top-up and which do not.
What evidence do lenders need for a gifted equity transaction?
Lenders require clear documentation to evidence a gifted equity purchase. The standard pack includes: (1) a formal gifted equity letter (or concessionary purchase letter) from the seller, confirming the market value, the agreed purchase price, the equity being gifted, that the gift is unconditional (not a loan and not expected to be repaid), and that the seller will not retain any interest in the property post-sale; (2) an independent RICS-registered valuation or survey confirming the open market value; (3) confirmation from your solicitor that they are aware of the concessionary nature of the purchase and are satisfied with the transaction structure; and (4) standard mortgage application documents (income evidence, bank statements, identification). Lenders also typically ask whether the seller will remain living in the property after completion, as this can raise concerns about a hidden beneficial interest.
Can I use gifted equity to buy my parents' house?
Yes — buying a family member's property below market value is the most common gifted equity scenario. Parents selling to children, grandparents selling to grandchildren, and other close family transfers all fall into this category. Most lenders who accept gifted equity require the seller to be a close family member; gifted equity from unrelated parties is viewed with more suspicion, as lenders need to satisfy themselves that the discount reflects genuine family support rather than a fraudulent scheme to overstate the property's value. When buying from parents at a discounted price, it is also worth considering the stamp duty implications: stamp duty land tax (SDLT) in England and Northern Ireland is payable on the actual purchase price paid, not the market value — which is an advantage compared with buying at market value — but the specific SDLT thresholds and rates still apply.
Does gifted equity affect stamp duty?
In England and Northern Ireland, SDLT (stamp duty land tax) is calculated on the actual consideration paid — the purchase price — rather than the market value of the property. This means that if you buy a property worth £300,000 for £240,000, SDLT is charged on £240,000. This is a meaningful saving compared with purchasing at market value. However, if the seller is not retaining any interest in the property and there are no other forms of consideration flowing between the parties, the standard SDLT thresholds apply. In Scotland, Land and Buildings Transaction Tax (LBTT) applies on similar principles. In Wales, Land Transaction Tax (LTT) applies. You should confirm the SDLT treatment with your solicitor, particularly if the property transfer has any additional complexities (such as the seller retaining a right to remain in the property, which could change the taxable consideration).
Are all lenders willing to accept gifted equity purchases?
No — not all lenders accept gifted equity or concessionary purchase transactions. High-street lenders with automated underwriting sometimes decline these applications without explanation, while specialist lenders and building societies with manual underwriting are generally more comfortable with them. Lenders also vary in their specific requirements: some require a minimum market value, some require that the seller and buyer are connected by blood or marriage, some cap the maximum gifted equity percentage they will accept, and some require the seller to provide a statutory declaration rather than a simple letter. It is important to identify a lender who specifically accepts gifted equity purchases before proceeding, as the structure must be correctly documented from the outset — amending the transaction structure mid-application can cause delays and complications.
Can I combine gifted equity with my own savings or a gifted cash deposit?
Yes — gifted equity can be combined with your own savings or a separate gifted cash deposit to meet the lender's requirements. For example, if the gifted equity covers 10% of the market value but the lender requires a 15% effective deposit (85% LTV), you could top up the remaining 5% from your own savings. When combining multiple deposit sources, you will need to evidence each source separately: the gifted equity through the concessionary purchase letter and valuation, and any cash through bank statements and (if the cash is also a gift) a separate gifted deposit letter from the cash donor. Lenders apply their anti-money-laundering checks to all deposit sources, so the origin of all funds — gifted equity, cash savings, gifted cash — must be clearly evidenced and documented.
Risk warning
Your home may be repossessed if you do not keep up repayments on your mortgage. Seek independent legal and tax advice before entering a concessionary purchase — the stamp duty and capital gains implications for the seller should be understood before exchanging contracts.
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