There is more than one valid way to fund a mortgage so you’re not limited to just your personal savings. This is a misconception that many prospective borrowers have, but there are other ways a mortgage deposit can be provided. Read on to learn about the different ways a proof of deposit for a mortgage can be accepted, or contact Think Plutus to talk it through with an adviser.
Why do I have to prove where my deposit came from?
In the UK, mortgage borrowers are required by law to provide proof of identity, proof of address, and to disclose where their deposit has come from. There are strict anti-money laundering regulations which lenders and solicitors must adhere to, and there must be sufficient evidence that mortgage deposits are funded by legitimate, legal sources.
It is, therefore, a vital stage of the mortgage application process to provide proof of the source of your deposit. If your money comes from a non-approved source, lenders will quickly decline your application. You must be honest in your application right from the start to ensure there are no unexpected obstacles. You will need to provide proof of the disclosed source of your mortgage deposit money, and both lenders and solicitors will carry out rigorous checks to confirm you have been truthful about the origins.
There are various things you can provide as proof of funds for buying a house and where your mortgage deposit came from. Common evidence includes signed contractual agreements, bank/savings account statements and certain forms of certification. The type of proof you must provide will depend on what you disclose as the source of the funds – we’ll examine this in more detail later on. A mortgage adviser can help you gather the necessary documents before submitting your application to ensure you present everything in the right way.
What mortgage deposit sources are acceptable in the UK?
All mortgage lenders have their own criteria regarding what is an acceptable source of a deposit, but there are certain forms that are universally deemed to be trustworthy. If you are funding your deposit via one of these means, you will have the widest possible range of lenders to choose from. This increases your chances of getting the best deals with the most competitive rates. Of course, the deposit source isn’t the only consideration for mortgage lenders to assess; they will also examine things like the property’s loan to value (LTV) and your credit history.
Here are the mortgage deposit sources that virtually every lender will accept:
Lenders are always happy to accept deposits funded by the applicant’s personal savings. They may require proof, however, of the balance increasing over time. Account statements are usually sufficient proof of this.
The sale of a property
The proceeds from the sale of a previous property are usually a simple source of a deposit, so long as the capital is not under charge by anyone else. You will need to provide the evidence of these funds in your bank account.
Equity released from a second property
If you already own a large share of a property, or you own a second home that has appreciated in value, you might have sufficient equity to release to make up a deposit for another property.
Lenders are usually fine with a deposit funded by an inheritance. You will need a signed document from the executor that details the amount you have inherited, along with evidence of the money in your account.
There are also some deposit sources that are widely accepted, though not universally:
Sale of assets
Funds raised by selling assets like cars, valuable memorabilia, boats, works of art, or anything else that you are legally permitted to sell are usually acceptable as a source of deposit. You will need to show evidence of the sale.
If your deposit was gifted to you by a close family member, most lenders are happy with this. The most common family members that are deemed acceptable are parents, siblings and grandparents, so you will need to provide a signed legal agreement from the relevant parties detailing the gift’s terms and value.
You can learn more about gifts in our dedicated gifted deposit guide.
The deposit sources that some lenders will accept include:
Gifts from more distant relatives
Lenders generally regard gifts from more distant family members as higher risk, so they treat these cases with more caution. Aunts, uncles, cousins and step-parents are only acceptable gift-givers in the eyes of some lenders, and eligibility may be impacted by whether or not they are blood relatives.
Funds raised via gambling are sometimes accepted without issue, but lenders may be cautious with anyone who gambles regularly. You may be asked to provide bank statements and deduct all gambling income from your total income, potentially lowering your affordability.
Many lenders are hesitant when it comes to overseas savings, as it can be difficult to accurately trace the origins of the cash. This makes it harder to comply with anti-money laundering obligations. Some lenders offer more flexibility than others, but there will be conditions to fulfil.
Finally, here are the deposit sources that only a handful of lenders will consider:
Gifts from friends
A gift from a friend is deemed even less trustworthy than one from a distant family member. The risk is judged to be so high that very few lenders will ever approve, but there may be some. It can help to contribute some money of your own to prove your investment.
Gifts from employers
The risk of fraud and/or money laundering are high with gifts from an employer, so you will struggle to find any lender willing to accept. If you do find a lender willing to consider this, there will be extensive checks to trace the source of the funds, involving both yourself and the donor.
Most lenders are strictly against the use of cash for deposits. This is because the capital is very difficult to reliably source, and if it is added to your account it could make all funds in that account untrustworthy. It’s best to avoid cash when it comes to funding your deposit.
Any kind of unsecured borrowing is very unlikely to be accepted by lenders because borrowing money to borrow money is an extremely risky strategy. There may be a handful of lenders who will consider you, but your circumstances will dictate the likelihood of being approved.
How to provide proof of deposit for a mortgage
The proof you will be required to supply of the source of your mortgage deposit will depend entirely on where the funds came from. For example, where personal savings are being used, most lenders will ask you to provide 6+ months of bank account statements which demonstrate the funds gradually building up over time. If it’s an inheritance, you will probably need a document from the executors alongside bank statements showing the money arriving in your account.
Keep reading to learn about the required proof of deposit for a mortgage from different sources.
Savings are accumulated from regular (usually quite small) payments going into a savings account from your own income, such as salary, annuity or pensions. The evidence that is usually required for this form of deposit typically involves bank statements stretching back 6+ months displaying regular payments coming from a valid income source that slowly grow the amount in your savings account. Where multiple bank accounts are involved, you should provide statements for each of them.
Equity from another property
If you raise the funds by releasing equity to form a deposit to buy a second one, you may not need to provide evidence if you are dealing with the same lender, as they will already have full visibility of the situation. You will, however, need to prove that your income is sufficient to keep up with repayments on the larger mortgage amount.
Sale of property/assets
If you’ve sold property or other assets to acquire a lump sum, you will need to provide evidence in the form of ownership documents, proof of sale and bank account statements displaying the money coming into your account from the solicitor or buyer. If you sold a property, a copy of the completion statement will probably be required as well.
Where the money for a deposit is gifted to you, you will need to have a legal agreement drawn up by a solicitor confirming the money is a gift. The agreement must establish that the donor will have no rights over the property, and it should detail the value of the gift, with signatures from all parties involved.
You will need a certificate of deposit inheritance from the executors if you are funding a deposit with inherited money. The certificate must display the amount you are receiving as a beneficiary. Additionally, you should provide a bank statement that shows the sum arriving in your account from the solicitor or executor.
If the funds are coming from an established bank account it will be far easier for solicitors to trace where the cash came from. This will enable them to rule out any suspected fraud or money laundering. The proof you provide will be similar to the proof of personal savings in a UK bank account, displaying regular in-payments from traceable sources.
If gambling winnings are funding your deposit you will be required to provide a receipt that confirms where the money was won and its total value. A bank statement will also be required, showing the payment being received from the gambling company. If the winnings were paid out in cash, it may be difficult to provide adequate proof of the source of your deposit. See below for more information on this.
Cash is usually a big red flag for solicitors because it is all but impossible to trace its source. Even if you have a legitimate explanation for the source of your cash deposit, you will struggle to get approved by lenders. There is a handful of solicitors that will consider a cash deposit, but there will probably be a strict limit on the amount they will accept.
If a significant sum of cash has arrived in your account that wasn’t sourced from any of the options listed above, we advise you to speak to a solicitor or contact the experts at Think Plutus to discuss your situation in detail. If you choose to proceed this way, we will connect you with a lender who will consider your application.
What’s the difference between an exchange deposit and a mortgage deposit?
The term ‘exchange deposit’ is one you may have heard. We often get prospective borrowers bringing up this term in a panic, thinking it’s an extra expense they will be required to cough up. We can assure you there is no reason to be alarmed. The exchange deposit is actually a part of the final deposit amount and is paid at the point of exchange. An exchange deposit is 10% of the overall purchase price of the house, and it is non-refundable in the extremely unlikely event that the deal falls through at this very late stage.
This 10% is paid as part of the overall deposit amount, so it is not an additional expense that you are required to pay. It’s simple: if you are putting down a total deposit of 20% of the property’s purchase price, you will initially pay just 10% of it as the exchange deposit. The remaining 10% will be paid upon completion of the deal.
There is one exception to this rule: if you have a 95% mortgage, the full 5% deposit is payable at the point of exchange.
Consult a mortgage expert
If you still have questions about proof of deposit for a mortgage, contact Think Plutus and speak to one of our experts. We will be able to answer your questions and help you submit your application in the best possible way to the right lender for your circumstances. When you need tailored mortgage advice from genuine experts in the market, Think Plutus.