Mortgage lenders in the UK have to follow money laundering guidelines and as a result, borrowers are restricted in what they can and can’t use for a mortgage deposit. The top five sources of mortgage deposits in the UK are listed below.
Personal savings are perhaps the most used deposit source in the UK. Savings in a bank leave a clear paper trail, so the accumulation of funds over time is seen as a legitimate deposit source. This also creates applicants to appear as credible borrowers from a lenders perspective. This is because lenders can see that borrowers have saved funds and can be deemed financially responsible.
If you are using personal savings, then you will need to provide evidence. Bank statements will usually suffice. Lenders will also want to see payslips or accounts if you’re self-employed, however this to assess the affordability of the loan.
Gifted deposits can be used as a deposit source for a mortgage, but there are a few guidelines. A gifted deposit can come from a friend or more commonly a family member, such as parents. It’s important to clarify that a gifted deposit is a gift and not a loan. If somebody is loaning the deposit amount to you, then this usually won’t qualify and lenders won’t lend.
If you are using a gifted deposit, then the person gifting you the deposit needs to sign a statement, stating they are gifting you the money and don’t expect it to be repaid. This is to provide additional security to the lender, as their main focus is that the mortgage is repaid.
Inheriting funds is also a common form of deposit source. Lenders are generally relaxed if funds have come from inheritance, just as long as there is a clear audit trail. For example, if you’ve inherited a sum of money, then you should have the necessary legal paperwork outlining the details. You may be required to provide solicitor information also, depending on how strict the lender is. The reason lenders still request to see evidence is because of anti-money laundering rules. All lenders have a legal duty to check deposits haven’t come from any illegal activity.
Deposits from overseas
Deposits can be used from overseas, however it isn’t always easy to get a mortgage. As personal circumstances will vary, lenders assess situations such as these one case at a time. If you have strong evidence to prove that the deposit has come from a legitimate source, you should be fine. This is of course subject to the rest of your criteria passing their assessment checks.
There are some lenders that simply don’t deal with deposits from overseas, so do bear this in mind. You can speak to a mortgage broker if you’re unsure of which lender to apply with. There are lenders in the UK that will consider deposits from overseas, it’s just knowing which lenders to apply with.
Bridging loans for mortgage deposits
Using bridging finance to fund a mortgage deposit is possible. Many investors use bridging finance and lenders are generally content. If the rest of your mortgage application passes a lender’s criteria, such as affordability and credit checks, a bridge should be permissible.
Bridging loans can be risky as the interest rates are generally quite high. This is why investors usually use them for properties that need substantial works. Once the property has been refurbished, then a mortgage is taken out on a much lower interest rate.
Martin Alexander writes for Expert Mortgage Advisor and has been a mortgage broker for over a decade. He helps borrowers throughout the UK through writing mortgage advice articles and actively finding mortgage deals. You can find more UK mortgage advice here.