A deposit contribution, sometimes called a gifted deposit or gifted equity, is money the developer puts into the purchase so you need less cash of your own on completion day. It is one of the most common new-build offers, and one of the easiest to misread. The percentage on the hoarding is not the amount a lender will automatically treat as your deposit.
What you are being given
The offer should say an amount or a percentage, the plots it covers, and when it ends. Five per cent of £400,000 is £20,000. That only helps if the contract price, the incentive and the completion statement all use the same numbers. Ask for a written worked example: the price, the contribution, the cash you pay on completion, and what is left for your solicitor to receive from you and from your lender.
HM Land Registry treats a cash sum deducted from the purchase price, including a gifted deposit or cashback, as a discount. The price it records is the net sum, the money you actually pay the seller. It treats other help, such as the seller paying your stamp duty or legal fees, or supplying white goods, as an incentive, and it leaves those out of the price adjustment. The word the sales office uses is not the word the Registry or your lender will use. The contract has to be clear which one this is.
Why your lender cares
A mortgage is a percentage of what the lender thinks the home is worth and of what you are paying. If the seller is putting in £20,000, you may be borrowing a larger share of the money that actually changes hands than the headline loan-to-value suggests. Lenders set their own limits on contributions from a seller, a builder or any other party in the deal. Some will lend. Some will lend a smaller amount. Some will want the price reduced instead of a gift.
Tell your broker before you reserve. They need the amount, whether anyone else connected to you is also gifting money, and whether the contribution depends on using a particular mortgage adviser or solicitor. Family gifts have their own paperwork, usually a letter confirming the money is a gift and not a loan. A builder contribution is disclosed to the lender by your conveyancer. Surprises at mortgage-offer stage are how reservations run out of time.
The valuation is not your survey
Once an offer on a home is accepted, the lender values it for the loan. The government guide to buying a home is explicit that this valuation protects the lender. It may not even be a full visit, and it is not a survey of the home for you. On a new build the lender is also deciding whether it will lend on that development, that tenure and that incentive.
If the valuation comes back below the price, the contribution does not automatically fill the gap. You may be asked to put in more cash, renegotiate, or walk away. Read the reservation terms for that moment before you pay a fee. A contribution that looked generous at £400,000 is a different deal if the lender will only support £380,000.
Stacking it with other help
A deposit contribution can sit next to a Lifetime ISA, a first-time buyer stamp duty relief, or a 5% deposit mortgage. It can also be offered instead of those things, or instead of stamp duty paid, part exchange or an upgraded specification. The sales office should be able to show the allowed combinations for the plot.
Work out the value to you, not the value on the banner. A contribution that lets you keep your savings is useful. A contribution that lifts the price by the same amount, or that your lender refuses, is not. Our incentive calculator is a way to add the pieces up. The mortgage offer and the contract are where the number becomes real.
What to know
- Get the contribution in pounds, on this plot, with the completion statement that shows who pays what.
- Lenders set their own limits on seller-funded deposits. Ask your broker before you reserve.
- A gifted deposit is treated as a discount to the price paid. Stamp duty paid and white goods are treated differently.
- The lender’s valuation checks the security for the loan. It is not a survey for you.
Questions to ask the developer
- What is the contribution in pounds, and is the purchase price reduced by that amount?
- Which lenders have accepted this incentive on this development?
- What happens if the valuation is lower than the price?
- Which other offers do I lose if I take the contribution?
Sources
General information only, not financial or legal advice. Rules and offers change, so check the sources and your own adviser before you rely on a figure.