Saving for a deposit is one of the biggest hurdles for first-time buyers or those looking to move up the property ladder. However, many buyers can boost their deposit with help from family, a gift, or other sources. Understanding the rules around gifted deposits and other deposit sources is crucial, as they can impact your mortgage application.
In this guide, we’ll break down the different ways you can source your deposit and what you need to keep in mind when using them.
1. Gifted Deposits
A gifted deposit is one of the most common ways buyers receive help from family or friends to purchase a home. It is a financial gift, usually from parents, other relatives, or close friends, that helps cover all or part of your deposit.
What to consider:
- Proof that it’s a gift: Lenders require a signed letter confirming the money is a gift and that the giver expects no repayment. The lender needs to be confident that the gift isn’t a loan, which could impact your ability to repay the mortgage.
- Source of funds: Lenders will want to know the source of the gifted deposit to ensure the funds are legitimate. This means the person gifting the money may need to provide proof of where their funds came from, such as savings or inheritance.
- Inheritance or early inheritance: Gifted deposits can often come from inheritance or parents looking to pass on money early. As long as it’s clear that the money is a gift with no conditions, most lenders will accept it.
2. Savings
The most straightforward and common way to source a deposit is through personal savings. If you’ve been saving over time, you’ll need to provide bank statements to prove the funds are in place.
Things to keep in mind:
- Track your savings: Lenders will want to see where the savings came from and may ask for a history of your savings account. Make sure your savings are consistent, and avoid large unexplained deposits right before your application.
- ISA accounts: Many people save their deposit through a Help to Buy ISA or Lifetime ISA, which offer bonuses for first-time buyers. These accounts can be a great way to boost your deposit while earning interest or bonuses from the government.
3. Sale of Assets
If you’re selling high-value assets like a car, another property, or shares to raise your deposit, you’ll need to provide evidence of the sale.
What lenders expect:
- Documentation of sale: Lenders will ask for proof of ownership of the asset and documentation showing the sale. This could include receipts, sale agreements, or bank statements showing the funds entering your account.
- Timing of the sale: Make sure the funds from the sale are already in your account when applying for the mortgage, as lenders generally won’t accept future sales as a deposit source.
4. Equity from Selling a Property
If you’re moving home and selling your current property, the equity you’ve built up can be used as your deposit for your next purchase.
How this works:
- Calculating equity: Your equity is the difference between your current mortgage balance and the market value of your home. When you sell, this equity can be used as your deposit for your new home.
- Timing: You’ll need to carefully time the sale of your current property and the purchase of your new one to ensure the funds are available when needed.
5. Joint Borrower, Sole Proprietor
Some buyers, especially first-time buyers, may benefit from a joint borrower, sole proprietor mortgage. In this scenario, a family member, usually a parent, helps with the mortgage repayments without being on the property’s title deeds.
Key points to note:
- Who contributes: A parent or relative contributes to the monthly mortgage payments, helping you afford the property. However, they don’t have any legal ownership of the home.
- Lender requirements: Lenders will assess both the borrower’s and the supporter’s financial situations to ensure that repayments can be maintained.
6. Guarantor Mortgages
A guarantor mortgage allows a family member or close friend to guarantee the mortgage. This means they agree to cover the mortgage payments if you’re unable to.
What to know:
- Guarantor responsibilities: The guarantor uses their own savings, home, or other assets as security against the mortgage. If you fail to make payments, the lender can request the guarantor to step in.
- Limited ownership: The guarantor doesn’t have any legal ownership of the property, but their assets are at risk if you default on the mortgage.
7. Government Schemes
The UK government offers various schemes to help buyers with their deposit, particularly for first-time buyers.
Examples include:
- Help to Buy Equity Loan: The government lends you up to 20% (40% in London) of the cost of a new-build home. This means you’ll need a smaller deposit, though you’ll eventually need to repay the loan.
- Shared Ownership: You buy a share of the property and pay rent on the rest, meaning you need a smaller deposit since it’s based on the value of the share you purchase.
8. Inheritance
If you’ve recently received an inheritance, this can be used as your deposit. However, lenders may require proof of where the funds came from and documentation showing that the money is now in your account.
Considerations:
- Proof of inheritance: Lenders may ask for a copy of the will or legal documentation showing the inheritance has been received.
- Using a large sum: Inheritance can often be a large lump sum, and lenders will want to ensure this doesn’t affect your ability to manage your other finances.
Important Considerations When Using Any Source of Deposit
- Proof of Funds: Regardless of where your deposit comes from, your lender will need evidence that the funds are legitimate. Be prepared to provide detailed documentation to satisfy their requirements.
- Anti-Money Laundering Regulations: Lenders are required to comply with strict anti-money laundering regulations, so they will scrutinise where your deposit comes from and may ask for additional paperwork or explanations for large deposits.
- Consult a Mortgage Broker: If your deposit comes from a less traditional source, such as a gifted deposit or sale of an asset, it’s helpful to speak to a mortgage broker. They can advise you on how best to present your deposit to a lender and which lenders are more flexible.
Sourcing your deposit from a range of places can help make homeownership more accessible, but it’s essential to be aware of the rules and requirements surrounding each option. If you’re unsure how your deposit will affect your mortgage application or need help navigating the process, speak to a mortgage broker at Quick Mortgages.
Disclaimer:
This article is for general guidance purposes only and does not constitute legal, financial, or professional advice. Mortgage products and their terms can vary, and it is important to seek advice from a qualified, regulated professional who can assess your individual circumstances. Please ensure you consider your unique needs before making any financial decisions.
While every effort is made to ensure that the information provided on this blog is accurate and up-to-date, we do not guarantee its completeness or accuracy. The mortgage market can change rapidly, and the information on this blog may become outdated. We recommend verifying any information before acting on it and seeking tailored advice.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
