Last reviewed on 11th July 2023 by Martin Alexander (Mortgage Advisor)
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, your circumstances will also be a factor when applying for a mortgage.
Where can my mortgage deposit come from?
“Where has your deposit come from?”. Your mortgage advisor should always ask this question. This isn’t because we’re trying to be intrusive, it’s so we can start preparing your application.
We also have a duty to establish your deposit has come from a legitimate source. Every lender and solicitor will ask about your deposit source, so it’s crucial 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 necessary for lenders to assess your entire financial profile. Understanding how you’ve accumulated a mortgage deposit helps lenders to do this. Mortgage deposits are no different as all lenders vary in what they will and won’t accept.
Some lenders will accept gifted deposits with little fuss, whereas others won’t. This is another reason your mortgage advisor needs to understand your deposit source.
Knowing where your deposit has come from lets us place your application with the right lender. It would be pointless to place an application with a lender who 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. 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 should be satisfied if your mortgage deposit has come from your savings. Even the strictest of lenders shouldn’t have any issues.
Occasionally, 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. You’ll still require a clear paper trail outlining that you’re the executor of the inheritance. Legal 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. Although a gift is generally acceptable, it does need to meet a lender’s requirements.
The majority of lenders will only accept gifts from documented family members. Even if your gift has come from stepfamily, it’s usually accepted.
Most lenders won’t accept your mortgage application if your gift has come from a friend or other source. 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 because of anti-money laundering regulations and to minimise fraud. It isn’t impossible, but it is challenging.
You will undergo comprehensive checks if you’re using a gifted mortgage deposit. Again, this is to minimise the risk of fraud and money laundering. On occasion, the individual gifting you the deposit may also undergo checks.
Read more: How to get a mortgage with a gifted deposit.
Deposit from selling a property
If you’ve just sold or are selling a property, you’ll likely 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 rarely have any issues with this.
Lenders will require evidence of your sale and 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 a property, you may have other valuable assets. Valuable assets, such as cars, jewellery and anything that has a recognised value, can be sold to purchase a home. Using proceeds from the sale of assets to fund a mortgage deposit is often accepted.
Lenders will probe into the details of your transactions. This is because they must be confident that your deposit hasn’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. Some lenders may accept unsecured finance as a viable deposit source, but you would severely limit your mortgage options.
Using payday loans and other forms of quick finance will also reduce your mortgage options. Regularly using emergency loans can sway lenders to think you’re not financially stable. Relying on finance every month only weakens your mortgage application.
Please note: This is not related to personal loans from people but from finance companies.
Deposits from bridging loans
Bridging loans can be helpful for certain ’emergency’ situations or property investments. Bridging finance is generally accepted by lenders, as the borrower is placing the majority of risk on themselves. This is because bridging finance often has high rates attached.
Fees are usually charged monthly, with rates starting at 1% per month! Nonetheless, bridging finance can be a great tool when used correctly.
Read more: What is a bridging loan?
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 every month can deter lenders. If lenders are happy to consider you, it can still impact 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.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.