When getting a mortgage a key factor is your proof of deposit for the mortgage.
If you can’t prove where you have gotten your mortgage deposit from or that you have a suitable mortgage deposit then you may find few mortgage lenders who are willing to lend to you.
If you have gotten your mortgage deposit as a gift then you may find that most mortgage lenders will expect you to have a gifted mortgage deposit letter. This can either be one which is drafted up by yourself or one that is provided by the mortgage lender.
The requirement for the proof of deposit for your mortgage will vary amongst mortgage lenders.
There are also various ways to fund your mortgage deposit and you are not simply limited to your personal savings. This means there are mortgage lenders out there who will accept various forms of a mortgage deposit but you will need to have sufficient proof of deposit for your mortgage to be approved(considering you meet the mortgage lenders other affordability requirements). Before submitting an application for a mortgage in principle or a mortgage offer you should ask your mortgage broker if the lender will accept the form of mortgage deposit which you have as without this your mortgage may get declined.
Legal requirements for proof of deposit for a mortgage
The Uk regulatory body now makes it a requirement that mortgage lenders are aware of where you have gotten the money to fund your mortgage deposit. This is very important as it prevents fraud, money laundering and a host of other crimes. It is the mortgage lenders obligation to find out where you got the money from and ensure it is from a legitimate source.
If a mortgage lender isn’t satisfied with the answers you may have given to the source of your mortgage deposit you may find that they will reject your mortgage application on that basis alone. You should be sure of the information you provide to the mortgage lender when verifying the source of your mortgage deposit as being dishonest could also get your mortgage application declined.
Your mortgage lender isn’t the only one who will look to get proof for where you have sourced your mortgage deposit from, your mortgage broker will do this, your conveyancer will also do this so they can fulfil their regulatory obligations too.
If your mortgage broker or conveyancer isn’t satisfied with the answers you have given they may decline to help you and in some cases may have a duty to report you to the police or any suitable body.
What kind of proof of deposit for a mortgage do you need?
The proof of deposit for mortgage you need will depend heavily on where your source of mortgage deposit is. In some cases, it could simply be a letter from someone who has gifted you the mortgage deposit ( a gifted deposit letter), in other cases it could be a letter from an accountant or a contract stating income.
The proof of mortgage deposit you may need will depend on where your source of funds is from.
What forms of proof of deposits for a mortgage do lenders accept in the UK?
Different mortgage lenders will have varying requirements as to what they may accept and what they won’t accept. Some forms of proof of deposits for a mortgage are riskier than others as most lenders may scrutinize them or look for additional information and may still reject you as they are unsatisfied with the proof of deposit which you have provided.
In general, the below are the proof of deposit for mortgages which most mortgage lenders in the UK may accept at first glance.
If you have any of the below proof of deposit for a mortgage then you will find that most mortgage lenders may be willing to you. You will of course still have to meet other mortgage affordability requirements such as having good credit, having a sizeable mortgage deposit and being able to make your monthly mortgage repayments per month.
The proof of deposit for a mortgage which most mortgage lenders may accept include:
Mortgage deposit from inheritance funds
Most mortgage lenders may be willing to accept a mortgage deposit when it is derived from inheritance funds. They may usually require you to show proof of the funds in your bank account coming from the estate and a signed letter from the executor stating that you have received these funds as part of an inheritance. The mortgage lender may accept this as proof of deposit for a mortgage.
Mortgage deposit from personal savings
Mortgage deposit from personal savings is one of the most common types of mortgage deposits. The mortgage lender will expect to see your bank statement, personal ISA statement or any similar statement from a regulated financial institution which holds your personal savings. Some mortgage lenders will insist that this is a UK or EU institution so they can perform verification checks if necessary. The mortgage lender may also want to see your bank statement or evidence of how you got these funds which are now in your savings. The mortgage lender may accept this as proof of deposit for a mortgage.
This could be from a help to buy ISA, lifetime ISA or any other government scheme such as the help to buy equity loan scheme. With these schemes, the mortgage deposit will usually not be given to you but rather paid to your conveyancer or the mortgage lender. You will usually receive an authority to proceed letter from the first-time buyer or home mover government scheme provider which will serve as proof of your eligibility for the scheme and how much the scheme will be providing towards your mortgage deposit. The mortgage lender may accept this as proof of deposit for a mortgage.
Mortgage deposit from a property sale
Most mortgage lenders will accept a house sale as a source of mortgage deposit. The proof of mortgage deposit they may need for the house sale will be evidence of the funds being received into your account and evidence that these funds are not under charge by any entity.
Mortgage deposit from equity from another property
If you have a property which has increased in value and you are able to release equity from the property to use as your mortgage deposit then you may be able to use this as your mortgage deposit. The mortgage lender will expect to see evidence of these funds from the mortgage lender coming into your bank account. The mortgage lender may accept this as proof of deposit for a mortgage.
The mortgage lender may also want to see that you can keep up repayments on your other mortgage as well as this new one before the will lend to you.
The proof of deposit for a mortgage which some mortgage lenders may accept include:
Mortgage deposit from overseas savings
If you have an overseas savings account then you may find that not many mortgage lenders will accept this as the proof of mortgage deposit but those who do may insist that the bank account is in the EU or the USA where they can perform some basic verification checks. A bank statement and a letter from the overseas bank may be enough for the mortgage lender but in some instances, they may dig deeper to find out where those savings were derived from. As long as you can provide a letter headed, dated and signed letter from the bank or institution in question then the mortgage lender may accept this as proof of deposit for a mortgage.
Mortgage deposit gifted from family or friends
Some mortgage lenders will accept a mortgage deposit which has been gifted by family or friends but the mortgage lender will usually want there to be a gifted deposit letter stating things such as the relationship between you and the person gifting you the mortgage deposit and why it has been gifted to you. Some mortgage lenders provide their own template for this gifted deposit letter and some mortgage lenders may request proof of where the person gifting the mortgage deposit acquired the funds. The mortgage lender may accept this as proof of deposit for a mortgage.
The gifted deposit letter will also be essential so the mortgage lender knows if the gift is truly a gift or if it is a loan which may potentially challenge its first charge mortgage on the property and also affect your mortgage affordability as you potentially struggle to make repayments in the future.
Mortgage deposit from the sale of other assets
When your mortgage deposit is funded by the sale of assets such as jewellery, paintings, electronics, boats or anything else then there are some mortgage lenders who may accept this as a mortgage deposit but they will usually look to get evidence of the sale before they can accept it as proof of deposit for a mortgage.
Mortgage deposit funded by a gambling win
Some mortgage lenders may accept gambling as a source of funds for a mortgage deposit if you can prove the money came from gambling winnings. They will want to see a letter from the gambling firm as well as the funds in your bank account from the firm.
If you gamble often then this may, in fact, end up going against you as a mortgage lender may not see you as fit to lend to.
The proof of deposit for a mortgage which most mortgage lenders may NOT accept include:
Mortgage deposits from strangers or associates
If your mortgage deposit is given to you and it is provided by a friend or associate who you cannot prove is close enough to you then you may find that many mortgage lenders may not accept this as it will raise red flags as to the purpose of the gift. The mortgage lenders who accept this will want to see where the money has come from and may look into it in very fine detail before they choose to go on. You will then need a gifted deposit letter to present to the mortgage lender which may be one supplied by the mortgage lender for you and the person gifting you the money to fill or one you prepare yourself. This gifted deposit letter should be sufficient as proof of deposit for your mortgage and helps the mortgage lender check that its first charge mortgage will not be challenged in the future.
If you have put in some of your own money into the mortgage deposit then this will make it look better to a mortgage lender than if the total mortgage deposit was provided by a stranger or associate.
Mortgage deposits funded through personal loans or other credit
Most mortgage lenders will not accept any borrowing as part of your mortgage deposit as they will find this kind of behaviour risky but there are a few mortgage lenders who may accept it. The mortgage lenders who accept mortgage deposits which are funded through borrowing may have a maximum percentile of the mortgage deposit which can be funded through this route. You will then have to provide proof of the borrowing as proof of deposit for your mortgage.
Cash as a mortgage deposit
Most mortgage lenders will not accept cash as a mortgage deposit except you are able to prove without any doubt where the cash has come from
Mortgage deposits gifted from your employer
Most mortgage lenders will not accept a mortgage gifted from your employer due to money laundering, tax evasion and fraud risks.
The mortgage lenders that may consider this as a proof of deposit for a mortgage will carry out detailed checks of the employer, the source of funds and the reason for providing them as a mortgage deposit to you.
If you are looking to get a mortgage deposit with your source of mortgage deposit being one that most mortgage lenders may not accept then it may be best to speak to a mortgage broker who may be able to advise you on mortgage lenders who could potentially offer you a mortgage given your circumstances.
What’s the difference between an exchange deposit and a mortgage deposit?
An exchange deposit is simply a part of the final mortgage deposit amount which is payable at the exchange of contracts stage of the home buying process.
It is usually 10% of the property price and this is non-refundable should the property purchase not go through for any reason.
An example of the exchange deposit. If you have a 20% mortgage deposit, at the time of the exchange of contracts you will usually pay 10% out of the 20% as your exchange deposit and then the remaining 10% on completion of the purchase.
In some cases, if you have a mortgage with a high loan to value such as a 95% LTV mortgage then you may be required to pay all of the mortgage deposit at the exchange of contracts stage. In the case of a 95% LTV mortgage, that will be 5%.
Do you need proof of deposit for a mortgage in principle?
Usually, a mortgage lender may not require you to have proof of deposit before they process yourmortgage in principle application.
Do you need a deposit before applying for a mortgage?
Yes, you will need to have a mortgage deposit before you apply for a mortgage if not you will not meet the mortgage affordability requirements and this may make the mortgage lender decline your mortgage application.
How do I show proof of money to buy a house?
To show proof of money to buy a house you must first see what proof of money the mortgage lender is requiring before they give you a mortgage to buy a house.
Use a Government scheme
Government schemes help you reduce the amount of mortgage deposit you may need to put down, reduce the price of the property or create a structure that increases your mortgage affordability much sooner than it would have been.
Some of these include first-time buyer government schemes whilst others in this list are accessible to you even if you are not a first-time buyer.
Government schemes are not available to you if you are getting a buy to let mortgage.
The Government schemes include:
- Lifetime ISA– gives you a government bonus of £1,000 if you save a maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan– gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy– allows you to buy your home at a discount price.
- Preserved right to buy– same as above.
- Right to acquire– similar to the above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.
Use a mortgage broker for your mortgage in principle
You may want to use an independent mortgage broker to help you get a mortgage on your new home.
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 as more estate agents and sellers may take you seriously and it will also 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 that details 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.
This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.
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.