We’ve seen some pretty strange deposit sources over the years. Not everyone will use savings for a mortgage deposit, so where else can a deposit come from?
This article will explain what can be used for a mortgage deposit and what can’t. All lenders do vary in what they’ll accept. Furthermore, the circumstances of the borrower will also make a difference when applying for a mortgage.
Where can my mortgage deposit come from?
“Where has your deposit come from?”. This question will and should always be asked by a mortgage advisor. This isn’t because we’re trying to be intrusive, it’s simply to start preparing your application. Advisors also have a duty to establish your deposit has come from a legitimate source. Every lender and solicitor will ask about the deposit source, so it’s important that mortgage brokers understand this from the outset.
Anti-money laundering regulation requires solicitors, lenders and advisors to ensure that mortgage deposits have not come from any illegal activity. It’s also important for lenders to understand your entire financial profile. Understanding how you’ve accumulated a mortgage deposit helps lenders to do this.
As all lenders vary in what they will and won’t accept, mortgage deposits are no different. Some lenders will accept gifted deposits with little fuss, whereas other lenders may not. This is another reason why it’s vital for your mortgage advisor to understand your deposit source. Knowing where your deposit has come from, enables advisors to place your application with the right lender. It would be pointless in placing an application with a lender who simply doesn’t accept your deposit source.
Personal savings are the most common form of mortgage deposits in the UK. As deposits are saved in bank accounts, lenders can often calculate the increase in savings over a certain period of time. This helps lenders in assessing the legality of your income source. You will need to provide evidence of any income, such as bank statements, payslips or accounts if you’re self-employed.
Lenders will be satisfied if your mortgage deposit has come from your own personal savings. Even the strictest of lenders shouldn’t have any issues. On occasion, very strict lenders may probe further into your savings and how they’ve accumulated. This can involve requesting additional payslips, accounts or older bank statements.
Deposits from inheritance are typically accepted without any major issues. As long as there is a clear paper trail outlining that you’re the executor of the inheritance. Solicitor documents may also be requested from lenders to assess the inheritance in detail.
A gifted deposit is simply a deposit or part of a deposit that has been gifted to you. Gifted deposits are generally fine to use, however they do need to meet lender criteria. The majority of lenders will only accept gifts from documented family members. Even if your gift has come from stepfamily, it’s usually accepted.
If your gift has come from a friend or other source, then the majority of lenders won’t accept your mortgage application. That said, there are still a few lenders that may accept gifted deposits from non-family members.
Gifts from third parties are very hard to use as mortgage deposits. This is simply because of money laundering regulations and to minimise fraud. It isn’t impossible, but it is very difficult.
If you’re using a gifted mortgage deposit, then you will undergo comprehensive checks. Again, this is to minimise the risk of fraud and money laundering. On occasion, the individual gifting you the deposit may also undergo checks.
Deposit from selling a property
If you’ve just sold or are in the process of selling a property, the chances are you’ll want to reuse your initial deposit and any equity you’ve gained to secure your next property. This is a very common scenario and lenders won’t have any issues with this.
Lenders will need to see evidence of your sale and will also evaluate any charges on the property. Underwriters may contact your solicitor to check the progress of your property sale. If the mortgage isn’t secured in the name of the applicant, then this can cause problems. This is because the proceeds of the sale will go to the mortgage owner of that specific property.
Funds from selling assets
In addition to property, you may have other valuable assets. Valuable assets such as cars, jewellery and anything that has a recognised value, can be sold to then purchase property. Using proceeds from the sale of assets to fund a mortgage deposit is often accepted.
Lenders will probe into the details of your transactions, as lenders, solicitors and advisors need to be confident that the funds haven’t come from an illegitimate source.
Using overseas income as a deposit is typically assessed on a case by case basis. Deposits from overseas are complex. This is because lenders have a duty to ensure your deposit is legitimate. This can be tricky for most lenders, but it all depends on your paper trail.
Some lenders will flat out decline your application. Whereas other lenders may offer more flexibility and at least investigate your application. Having an advisor on board is paramount, as applying to the wrong lender will waste your time and money.
Credit cards and personal loans
Using an unsecured loan for a mortgage deposit isn’t generally accepted. Personal loans and credit cards aren’t often accepted as viable deposit sources. That being said, it isn’t impossible. There are lenders that may accept unsecured finance as a viable deposit source, but you would be severely hampering your mortgage options.
Using payday loans and other forms of quick finance will also hamper your mortgage options. Regularly using emergency loans can sway lenders into thinking that you’re not financially stable. Relying on finance on a monthly basis only weakens your mortgage application.
Please note: This is not related to personal loans from people, but personal loans from finance companies.
Deposits from bridging loans
Bridging loans can be quite useful for certain ’emergency’ situations or property investments. Bridging finance is generally accepted by lenders, as the borrower is placing the majority of the risk on themselves. This is because bridging finance often has high rates attached.
Fees are usually charged on a monthly basis, with rates starting at 1% per month! Nonetheless, bridging finance can be a great tool when used correctly.
Proceeds from gambling
Big wins from gambling can sometimes be used as deposits, but the issue is rather complex. This is because lenders will assess your overall expenditure. Whether you win big or lose small, gambling will still be classed as an expenditure.
Even if you’ve saved a deposit from other income sources, having large gambling bills on a monthly basis can deter lenders. Even if lenders are happy to consider you, it can still affect your affordability.
This means that a lender may accept you for a mortgage, but only offer you a reduced loan amount. If you wish to maximise your mortgage loan and get a great deal, then reducing your time spent on gambling is a must.