Proof of Mortgage Deposit
Demonstrating the origin of your deposit is a crucial aspect of the mortgage application process, but it might not always be simple. Depending on the source of your funds, providing the necessary proof for the lender’s approval might be challenging.
Don’t fret if that’s the case. There are ways to prove what some lenders regard as ‘non-standard’ deposit sources, and this guide will explain how. Here, you’ll learn how to validate various deposit types, the role of a broker, and more.
How to Prove Your Mortgage Deposit
The method for proving your mortgage deposit depends on its origin. For conventional deposit sources like personal savings, most lenders will want to see the funds accumulating in your bank account over a period, typically six months or more.
Below is an overview of the evidence needed for each deposit type:
Personal Savings
The ideal evidence for personal savings is at least six months of bank statements displaying regular in-payments from your employer, pension, or any other legal income source, and the money gradually increasing in your bank or savings account.
If you have multiple bank accounts and plan to use funds from all of them for your deposit, you should provide six months’ statements for each account.
Selling Property or Other Assets
If you’ve received a lump sum from selling a property or other assets like a car or boat, you should provide evidence in the form of ownership documents and a copy of your bank account statement displaying the sale proceeds.
If the funds come from a property, also include a copy of the completion statement once the sale has been finalised.
Equity Released from a Property
If you’re releasing equity from a current property to fund the deposit for a second one, you won’t need to provide evidence if you’re negotiating a larger mortgage to cover both properties with the same lender. They will already be aware of your situation.
However, they will require proof that you can afford the repayments for a larger mortgage, which they will assess by calculating your debt-to-income ratio.
Inheritance
If your deposit comes from an inheritance, you will need to provide a certificate of deposit inheritance issued by the executors.
This document should state how much you are receiving as a beneficiary, and you will also need to provide a copy of your bank statement showing the transfer from the solicitor or executor’s account to your own bank account.
Gifted Deposits
For any gifted deposit, your solicitor will require a legal agreement confirming that the money provided is a gift that will never need to be repaid and that the donor has no rights over the property. It should also detail the gift’s value and be signed by all parties.
Overseas Savings
As long as you use funds from an established bank account or similar overseas account, it’s easier for solicitors to trace the money’s origin and rule out any suspicions of fraudulent activity.
Proof can be provided similarly to personal savings in the UK, with the buyer offering copies of a bank/savings account statement showing regular in-payments for savings (which must be traceable).
Gambling Winnings
If you’re using gambling winnings as a source for your mortgage deposit, be aware that many lenders may view this as a high-risk source of funds. This can make it more challenging to secure a mortgage, as lenders typically prefer more stable and predictable sources of income.
- Documentation: To prove gambling winnings as your deposit source, you must provide documentation to support your claim. This can include bank statements showing the receipt of winnings, official letters or emails from the gambling establishment, or even tax documents related to your winnings. Ensure that your documents are clear, legitimate, and demonstrate the origin of the funds.
- Lender selection: Not all lenders will accept gambling winnings as a deposit source, so you may need to shop around to find a lender who will accommodate your situation. A mortgage broker can be helpful in this process, as they can identify lenders who are more likely to accept this type of deposit.
- Additional requirements: Lenders may require additional documentation or assurances when using gambling winnings as a deposit source. This can include a larger deposit, a higher credit score, or proof of a stable income outside of your gambling activities. Be prepared to meet these requirements in order to improve your chances of securing a mortgage.
- Financial planning: Using gambling winnings as a deposit source can raise concerns about the sustainability of your income and your ability to manage finances responsibly. It is crucial to demonstrate a history of responsible money management and financial stability in other areas of your life, such as regular savings, consistent employment, and a good credit history.
How likely your deposit is to be accepted
Commonly Accepted Deposit Sources
| Deposit Source | Mortgage Lenders’ Stance |
|---|---|
| Personal Savings | Lenders generally accept deposits funded by personal savings but may require proof in the form of bank/savings account statements to show an increasing balance over time. |
| Proceeds from the sale of a property | There are usually no issues with this, provided the property proceeds are not undercharged by someone else and evidence of the funds in your bank account is available at the time of completion. |
| Equity released from a property | This is typically not a problem, but mortgage lenders will need evidence that you can keep up the repayments for a larger/second mortgage if you’re buying another property in addition to the one you released equity from. |
| Inheritance | Most lenders accept inheritance-funded deposits but require a letter from the executor detailing the amount you are receiving and evidence of the funds in your account. |
| Gifted deposits from close family | Lenders tend to accept gifted deposits from close family members like parents, grandparents, and siblings, and require a signed legal agreement from all parties detailing the terms and value of the gift. |
| Sale of other assets | Deposits funded by the sale of assets, such as cars, boats, valuable memorabilia, artwork, or other legally sold items, are usually acceptable forms of deposit, provided the sale is legitimate and you can present evidence of it. |
If your mortgage deposit comes from one of the above sources, you should have a wide range of lenders, rates, and deals to choose from based solely on the type of deposit you have.
However, mortgage eligibility depends on more than just the source of your deposit. The deposit amount, your income, and your credit history will also be assessed. It’s a good idea to speak to a mortgage broker before applying to ensure you get the best possible deal based on all these factors.
Sometimes Accepted
| Deposit Source | Mortgage Lenders’ Stance |
|---|---|
| Gifts from distant relatives | While close family are generally accepted, gifts from more distant relatives like aunts, uncles, step-parents, or cousins might be declined. Blood relation can impact eligibility. |
| Overseas savings | Deposits sourced from overseas savings can be challenging for lenders to trace, posing potential money laundering risks. Some lenders are more flexible, especially if funds come from an established bank account and can be legitimately traced. |
| Gambling winnings | Gambling funds might be accepted without issues, but lenders could be hesitant if gambling is a regular occurrence. Some may want to examine bank statements and deduct gambling income from your total available income, impacting affordability significantly. |
If your mortgage deposit comes from one of these sources, rejection chances or having to settle for a less favorable deal are usually higher. Speak to a mortgage broker to help offset this risk by matching you with the right lender.
Rarely Accepted
| Deposit Source | Mortgage Lenders’ Stance |
|---|---|
| Gift from friends | Gifted mortgage deposits from friends or family friends are considered less trustworthy than gifts from close family. Few mortgage lenders approve this, but some might, especially if you contribute some of your own cash to prove your investment. |
| Gift from an employer | Gifts from a third-party, like an employer, are rarely accepted due to money laundering and fraud risks. Lenders considering this will conduct extensive due diligence checks, scrutinizing the source of funds and possibly requiring ID verification for the donor. |
| Personal loans | Deposits sourced through personal loans or unsecured borrowing (e.g., credit cards, overdrafts) are generally not accepted by most lenders. However, depending on your circumstances, a few lenders might consider accepting your deposit, including some mainstream mortgage providers. |
| Cash | Cash deposits without a traceable source are typically not accepted by many lenders and can even taint the whole account, meaning none of the money in it can be used for a property purchase. |
If your deposit source is one of the above, it’s essential to speak to a mortgage broker to increase your chances of mortgage approval. Without a broker, your chances of being refused for a mortgage or having to settle for unfavorable rates are very high.
FAQs
- Why do I need to provide proof of deposit for a mortgage? Mortgage lenders and solicitors need to ensure that your deposit comes from a legitimate and legal source. They follow strict anti-money laundering regulations and guidelines to prevent fraud and financial crimes. Providing proof of deposit helps them verify the source of your funds and assess your eligibility for a mortgage.
- How can a mortgage broker help me with proving my deposit? Mortgage brokers can guide you on how to provide appropriate evidence for your deposit source. They are experienced in dealing with various deposit types and can help you prepare the right paperwork. Moreover, they can connect you with lenders who are more flexible about deposit types and increase your chances of approval.
- How do I know if my deposit source is widely accepted? Commonly accepted deposit sources include personal savings, proceeds from the sale of a property or other assets, equity released from a property, inheritance, and gifted deposits from close family. If your deposit source falls under these categories, you are likely to have a wide range of lenders, rates, and deals to choose from.
- What if my deposit source is not widely accepted? If your deposit source is not widely accepted, you may face a higher risk of rejection or less favourable deals. Speaking to a mortgage broker can help you navigate this situation. They can match you with suitable lenders and increase your chances of securing a mortgage.
- Can I use cash as a deposit for a mortgage? Cash deposits are generally not accepted by most lenders due to the difficulty in tracing the source of the funds. However, a few solicitors may accept a limited amount of cash (typically a few hundred pounds). If you have a large sum of untraceable cash, consult a solicitor or a mortgage broker for advice.
Conclusion
Proving your deposit for a mortgage is a crucial step in the mortgage application process. The source of your deposit can affect your chances of getting approved for a mortgage and securing a favourable deal. It is essential to understand how to evidence your deposit and be prepared with the necessary documentation.
If you’re unsure about your deposit source or need guidance on how to prove it, consult a mortgage broker at Freedom Advice. Our expert knowledge can help you navigate the mortgage application process, match you with the right lender, and increase your chances of success.