Gifted deposits and what lenders need

A gift is the simplest form of family help and the one lenders ask the most questions about. The money is the buyer's once it arrives; what the lender wants to know is that it really is a gift, that no one expects it back, and, on a low-deposit loan, that the buyer has also shown they can save. Those three things decide how the gift is treated on the application.

The gift letter

Lenders commonly ask for a signed statement from the giver, a gift letter or a statutory declaration, saying who is giving what to whom, that the money is a gift, and that it is not repayable. Some lenders have their own form; some accept a letter; some want the declaration witnessed. The letter is what lets the lender establish, as APRA's guide asks, whether the money is to be repaid, and so leave it out of the borrower's liabilities. Without it, or if the paperwork says the money is to be repaid, the lender treats the advance as a loan, which is the subject of the next guide.

The letter binds the giver too, in a practical sense: a gift declared to a lender is hard to recharacterise as a loan later, whether in a family dispute or an estate. Both sides are better off deciding which it is before the letter is written.

Genuine savings

On low-deposit loans it is common for the lender to want part of the deposit to be genuine savings: money the buyer saved over time, shown in statements. The share and the period are each lender's policy. A common formulation is 5% of the price shown over three months, and the loan-to-value ratio at which the test applies also varies; no regulator sets either number. A gift that lands the week before the application is not genuine savings under that test. Some lenders accept a gift that has sat in the buyer's account for the three months; some accept rent paid on time as evidence of saving in place of a balance; some waive the test below a certain loan-to-value ratio. The family-help planner shows the ratio the gift produces, which is the number that decides whether the test applies at all.

The practical consequence is timing. A gift given early enough to season in the buyer's account is treated differently from the same gift given at exchange, and a broker can say which lenders care.

Gift or loan: what the lender sees

The distinction is not a formality. A gift raises the deposit and changes nothing else. A repayable family loan raises the deposit and adds a monthly repayment to the borrower's commitments, which reduces how much the lender will lend. Two families can hand over the same amount and produce different loan approvals depending on which word they use. Neither is right in general; each has consequences on the parents' side as well, covered in family loans done properly and gifting rules, the age pension and the family home.

Tax on the buyer's side

Australia has no gift tax, and a genuine gift is not income of the person who receives it, so nothing about the gift itself goes on the buyer's return. What can follow is ordinary: interest earned on the money while it sits in the buyer's account is income, and a later sale of the home is subject to the usual main-residence rules. The giver's side, including Centrelink's treatment of large gifts, is a separate question with its own page.

What lenders commonly ask for

• The gift letter or statutory declaration, signed by the giver, sometimes witnessed.
• Evidence the money has arrived: a transfer record or a statement showing the balance.
• On low-deposit loans, evidence of the buyer's own savings over a period.
• Identification of the giver, and sometimes a note of the relationship.
• Where the gift comes from the sale of an asset or an inheritance, evidence of that source.

Before the transfer

Two conversations avoid most of the problems. The first is with a broker or the lender, about which documents and which timing the policy wants. The second is between the generations, about whether the money is a gift or a loan, because the paperwork will say one or the other and it is far easier to decide that first.