What Is Acceptable Proof of Deposit for a Mortgage?
“Where can my mortgage deposit come from?” - There are many acceptable ways to fund a deposit, and you’re not only limited to personal savings. Read on to find out what other options are available to help you get a foot onto the ladder.
This article cover the following topics…
Why you need proof of a mortgage deposit
What forms of deposit are accepted:
How to provide evidence of a deposit for a mortgage
Why Do I Need to Prove Where My Deposit is From?
In the UK, every mortgage borrower and property purchaser is now required to disclose the source of their deposit. These days, lenders and solicitors have strict anti-money laundering regulations and guidelines in place to ensure mortgage deposits are funded by legal, legitimate sources.
Where your deposit has been sourced is a vital piece information in the mortgage selection process - some lenders will decline you purely based on how it’s been obtained. Therefore it is very important to be honest on your application from the offset to ensure you’re placed with the right lender.
What’s more, you will also be asked for proof of the source of your mortgage deposit funds, and lenders and / or solicitors will carry out intensive checks to confirm the claims you have made.
Evidence of the source of your mortgage deposit comes in various forms, from a review of bank / savings account statements, signed contractual agreements, and particular forms of certification - to name a few. What proof you have to provide will depend on where the funds have come from, and we’ll be covering this in more detail later on.
What Are Acceptable Forms of Deposit in the UK?
While all lenders have different requirements as to what they will and won’t accept as a deposit, certain forms are deemed more trustworthy than others.
As a result, buyers funding a deposit by these means will have a far wider range of lenders to choose from and access to more competitive rates. Of course, individual circumstances such as the buyer’s credit history and the property’s loan to value (LTV) will also be considered alongside the deposit source.
Forms of Deposit that Are Nearly Always Accepted By Lenders
Personal savings funded deposit
Every lender is happy with a deposit funded by personal savings, although some may require proof in the form of bank / saving account statements so there is evidence of increasing balance over time.
Mortgage deposit from sale of house
Usually there are no problems with providing a deposit with proceeds from the sale of a previous home, as long as the property proceeds are not under charge by someone else. There must also be evidence of these funds in your bank account at the time of completion.
Deposit raised from capital from another property
If you own a large enough share of your current property or your home has increased in value, you may be able to release some equity as a deposit for a second home, and take out a larger mortgage to cover the two. This doesn’t tend to be a problem, but lenders will need evidence that you will be able to keep up the repayments for the larger mortgage.
Deposit from inheritance money
Most lenders are happy to accept an inheritance funded deposit, but will require a letter from the executor detailing the amount you are receiving, and evidence of the funds in your account.
Forms of Deposit that Are Widely Accepted By Lenders
Gifted deposit from close family members
Lenders tend to be happy with gifted deposits from close family members such as parents, grandparents and siblings, and will require a signed legal agreement from all parties detailing the terms and value of the gift.
Deposit funded by sale of other assets
Deposits funded by the sale of assets such as cars, boats, valuable memorabilia, artwork, or anything other that is able to be sold legally are usually acceptable forms of deposit provided it is legitimate and you can provide evidence of the sale.
Forms of Deposit that Are Sometimes Accepted by Lenders
Gifted deposits from more distant relatives
Gifted deposits from more distant relatives can be viewed with caution by lenders due to the associated risk. While close family are not a problem, gifts from more distant relatives such as aunts, uncles, step parents or cousins etc. may be declined. Whether or not person if related to you by blood can also impact eligibility.
Deposits sourced from overseas savings
Deposits sourced from savings overseas can be a tricky one as it can be difficult for lenders to trace the origin of the cash and to confirm there is no risk of money laundering. Some lenders are more flexible, if for instance the funds come from an established bank account and can be legitimately traced.
Deposits funded by a gambling win
Gambling funds may be accepted without an issue, but lenders may be hesitant if gambling is a regular occurrence. Some may want to examine your bank statements and deduct gambling income from your total available income, which may considerably impact affordability.
Forms of Deposit that Are Rarely Accepted by Lenders
Gifted deposits from friends
Gifts from friends or family friends are regarded as less trustworthy than a gift from a close family member. Due to the associated risk very few lenders will consider investing, but there may be a few that will, and it will help your case if you contribute some of your own cash to prove your investment.
Gifted deposits from an employer
Gifts from a third party such as an employer are not usually accepted due to the risk of money laundering and fraud. For lenders that will consider accepting, expect extensive due diligence checks to be carried out. These checks will scrutinise the source of funds and may include ID verification checks on the donor.
Personal loan funded deposits
Deposits sourced through taking out personal loans or other forms of unsecured borrowing (such as credit cards and overdrafts) are generally not accepted by most lenders because you’re borrowing money to borrow money. Depending on your circumstances however, a handful of lenders are accepting, including some mainstream lenders.
Cash tends to be a big no-no from many lenders. Cash deposits into an account that cannot be sourced generally cannot be used for a deposit, and can even taint the whole account, meaning that none of the money in that account can be used for a property purchase.
How Do I Prove Where My Mortgage Deposit Has Come From?
Explaining how your deposit has been sourced is the most important step in the conveyancing process. The onus is on the buyer to provide adequate proof of the source of their funds to their solicitor to rule out any instances of fraud.
You will not be able to proceed with your purchase until you have provided this. So, what evidence do you need before you can finalise your application? The different scenarios for proof of funds will depend on the deposit source:
Using personal savings for a mortgage deposit
Savings are regular (usually fairly small) payments into a savings accounts from an income such as a salary, pension or an annuity. The best evidence you can provide for this is 6 months' worth of bank statements which display regular in-payments from your employer / pension / annuity, and the money slowly growing in your bank or savings account.
If you have multiple bank accounts, then you should provide 6 months' statements for each of these accounts.
Selling property or other assets to source a deposit
If you’ve received a lump sum from a sale of a previous property or other assets such as a car, boat or other legal source, you should provide evidence in the form of ownership documents, alongside a copy of your bank account statement showing the money being received from the solicitor or buyer.
If the cash is coming from a property, you should also provide a copy of the completion statement once the sale has been finalised.
Using capital from another property as a mortgage deposit
If you are releasing equity from an existing property to fund the deposit for a second one, you will not be required to provide evidence if you are negotiating a larger mortgage to cover both properties with the same lender as they already have full visibility on your situation.
They will however require proof that you are able to afford the repayments for a larger mortgage, which they will assess by calculating your debt to income ratio.
Using inheritance for a mortgage deposit
A certificate of deposit inheritance will need to be provided from the executors if you’re funding a deposit in this way. This document will need to state how much you are receiving as a beneficiary, and you will also need to provide a copy of your bank statement that shows the sum has been transferred from the solicitor or executor’s account into your own bank account.
Using a gifted deposit for a mortgage
For any form of gifted deposit, your solicitor will require a legal agreement which confirms that the money being provided is a gift, and that the donor has no rights over the property. It should also detail the value of the gift, and be signed by all parties.
Using overseas savings for a mortgage deposit
Provided you are using funds which come from an established bank account or similar overseas, it is far easier for solicitors to trace the origin of the cash and rule out any suspicions of fraudulent activity.
Proof can be provided in a similar way as with personal savings in the UK, with the buyer providing copies of a bank / savings account statement displaying regular in-payments for savings (the sources of which must again be traceable).
Using gambling winnings for a mortgage deposit
If you’re using gambling winnings as a deposit you will need to provide a receipt confirming your winnings and the amount, as well as a copy of your bank statement showing the incoming payment from the gambling company.
If your winnings were in cash however, you will struggle to prove the source of your mortgage deposit which could severely inhibit your chances. See below for more information on the problems with cash deposits.
Using cash for a mortgage deposit
When it comes to cash, most solicitors are very wary because it is almost impossible to prove the true source of funds. Even if there is a legitimate way to explain the cash deposit, without proof it will be very tricky to be approved for a mortgage.
For those handful of solicitors that will accept cash, you are more than likely to find that there is a limit to the amount they will accept (typically no more than a few hundred pounds).
If you have a large sum of cash in your account which hasn’t been sourced by any of the options we’ve covered, either speak to a solicitor or get in touch to speak with a whole of market broker who will discuss your situation in more detail and connect you with the right lender, should you choose to proceed.
What’s the difference between an exchange deposit and a mortgage deposit?
You may have heard the term ‘exchange deposit’ being bandied about and are now in a panic wondering whether this is something extra you’ll have to cough up.
Don’t worry – the exchange deposit is mere a part of the final deposit amount, payable at the point of exchange. It amounts to 10% of the property’s purchase price and is non-refundable in the unlikely event of the deal collapsing at this late stage.
Like we said, this 10% forms part of the final deposit amount and is not something you have to pay in addition. For instance, if you’re putting down at 15% deposit, you will initially pay 10% of it to serve as the exchange deposit and the other 5% upon completion.
The only exception is if you have a 95% mortgage, in which case the full 5% deposit is payable at the point of exchange.
Speak with a mortgage deposit expert
If you’d like further advice on mortgage deposit proof, call Online Mortgage Advisor on 0800 304 7880 or make an enquiry here. Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee, and there’s no obligation or marks on your credit rating.
*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information.
The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.
Some types of buy to let mortgages are not regulated by the FCA.
Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
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