Mortgage deposit rules (A guide)
In this brief guide, we are going to define what the mortgage deposit rules are.
What are mortgage deposit rules?
Mortgage deposit rules, as the name indicates are rules which mortgage lenders have for borrowers in regards to their mortgage deposits. Most mortgage lenders will require a mortgage deposit of at least 5% to 20% but this will differ based on your circumstances.
Mortgage deposit rules will differ from one mortgage lender to another and they will also differ based on the mortgage product you are taking.
The key things when considering mortgage deposit rules is how you have raised your mortgage deposit.
Has the mortgage deposit been gifted to you?
Did you raise your mortgage deposit using a credit card?
Did you raise your mortgage deposit using a loan?
Or was your mortgage deposit given to you by a complete stranger or mutual friend?
To combat money laundering and other financial crimes, almost every mortgage lender will want to know the source of your mortgage deposit and based on the source of your mortgage deposit you may be rejected for a mortgage or provided with a mortgage offer.
If you have gotten your mortgage deposit from any other source other than through your savings and income then you may want to inform yourself on the mortgage deposit rules which the mortgage lender you want to apply to has.
You can also ask your mortgage broker to advise you on this.
Below is a guide on the mortgage deposit rules currently in place by most mortgage lenders in the UK.
Mortgage deposit rules: Sources of mortgage deposit
|Source of mortgage deposit||Comment on acceptance|
|Inheritance||If you have inherited funds from a family member or relative then most mortgage lenders will accept this. |
If the inheritance is not from a family member or relative there may be some questions as to why you have been gifted this money but most mortgage lenders will still accept it as an acceptable source of a mortgage deposit.
|Savings or income||If your mortgage deposit has been raised from your savings or income from employment and you have suitable references or employment history to prove that the income is genuine then this is an acceptable source of a mortgage deposit.|
|Government schemes||Some mortgage lenders will accept a mortgage deposit which has been funded by a government scheme( e.g help to buy equity loan) but others won’t.|
If you plan to fund your mortgage deposit with a government scheme then you should ensure the mortgage lender which you want to apply to will accept this.
There are now private market schemes which help people get on the property ladder and you should check t ensure that the mortgage lender will accept those as a source of your mortgage deposit as per their mortgage deposit rules.
|Benefits||If your mortgage deposit is being funded by income received from benefits then you may find that there are very few mortgage lender who will offer a mortgage on this basis.|
|Gifted deposits.||If your mortgage deposit has been gifted then you will find that most mortgage lender s have their own policy on this and almost all mortgage lenders will want the person gifting the mortgage deposit and yourself to sign a gifted deposit letter which they will provide to you.|
This ensures that the person who is gifting the deposit is aware that it is a gift and hence not a loan which may have a claim of charge over the property.
If the gift has not been gifted to you by a friend, close relative or family member then you may find that there are very few mortgage lenders who will accept it as an acceptable source of mortgage deposit as per their mortgage deposit rules.
This is due to the risk of financial crimes such as money laundering and in most cases, the mortgage lender will want to know where the person gifting you has obtained the funds and see their identification details.
|Sale of a property||If you have obtained the mortgage deposit through the sale of a property then most mortgage lenders will be happy with this as long as the proceeds of the sale are not under charge by another lender.|
|Investments||Most mortgage lenders are happy for you to fund your mortgage deposit by liquidating your investments although some may want to see what exactly you have done to ensure you are not putting yourself in a financially vulnerable position.|
|Sale of assets||Sale of assets such as cars, painting or jewellery is usually accepted by most mortgage lenders as an acceptable source of a mortgage deposit although some mortgage lenders will carry out further checks to ensure there is no hint of money laundering.|
|Bridging loan||Some mortgage lenders will allow you to use a bridging loan to fund your mortgage deposit as this credit product is used for numerous things including this.|
|Gambling income||Most mortgage lenders will be wary of someone using gambling income to fund their mortgage deposit and may grow even more concerned if you plan to use gambling income to maintain your monthly mortgage repayments.|
|Deposit from overseas||Most mortgage lenders will raise an eyelid of your mortgage deposit has been sent from an overseas bank.|
His is due to the riks of money laundering and not being able to accurately trace the source of funds.
If the bank which has sent the funds is a well-known bank and any letter can be obtained from the institution then this may go a long way to settling the mortgage lenders nerves.
|Unsecured borrowing||Most mortgage lenders will not accept unsecured borrowings such as credit cards and personal loans as an acceptable source of a mortgage deposit.|
This is because the borrower will be increasing the amount of debt they are carrying and may be more likely to default on their mortgage.
Use a mortgage deposit calculator
You can use a mortgage deposit calculator to see how much mortgage deposit you may need to raise for your mortgage.
Remember these numbers are only for guidance and the mortgage deposit you may need to raise may be much more than this.
Use a mortgage broker
You may want to consider using an independent mortgage broker to get a mortgage.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.
This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month.
It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.
Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.
They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.
In this brief guide, we are going to define what the mortgage deposit rules are.
If you have any questions or comments please let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.