Vendor Gifted Deposit

Vendor-gifted deposits are common when buying a newly built property.  It's an incentive to help the builder, help the buyer.  Sometimes known as a builder deposit or incentive.

How does it work?

The vendor (seller) in this case a property builder will gift a portion of the property price to the buyer.  No cash changes hands here, it is usually a discount on the purchase price of the property.

Example:

• A property is valued at £200,000
• The vendor gifts the buyer £10,000 (as a discount on the property value) or 10% of the property value
• If a mortgage lender agrees to provide a mortgage at 80% Loan to Value (LTV) the buyer needs to provide £20,000
• That £20,000 will be £10,000 gifted by the vendor and £10,000 from the buyer.

In effect, it means the buyer only has to provide half of the 20% required by the lender.

Potential issues

Most lenders are fine with vendor-gifted deposits however you should be aware of the following.

1. Some lenders either don't accept them or are at least wary.  There have been many instances where builders have been known to have property prices inflated to compensate for the vendor-gifted deposit.
2. Some lenders may base the LTV on the full price of £200,000 in the example above rather than the £190,000 after the vendor-gifted deposit.
3. In all cases, it's a regulatory requirement that the vendor-gifted deposit is declared to the lender.  I have seen instances where this has not happened and it's caused issues.

Largely it's not a bad thing and provides a useful incentive to the buyer, just make sure you understand how your lender will deal with it.