What sources can I use to pay my house deposit?
If you’re buying a home, whether it’s your first home or whether you’re trading up in size on the property ladder, you’re going to be saving for a deposit for that house along the way. But did you know that are rules and regulations about where the money for your deposit can come from when you buy a house in the UK?
When you buy a house, no matter the property price, you will have to pay a deposit. These days, because all house buying transactions have to be authorised and regulated, the money for your house deposit must be satisfactorily accounted for.
So when you’re looking for mortgage deals, it’s not just interest rates that you have to consider. You should also consider that any amount of deposit – from a small deposit to a larger deposit – will have to be assessed for compliance with money laundering regulations, and you’ll need to prove where the funds have come from.
Initially, when you first apply for a mortgage, your mortgage broker is only going to want to know what % of deposit you’re looking to put down so that they can work out your Loan To Value (LTV).
As your house buying journey progresses, your chosen financial services company / mortgage broker will want to prove to both the Financial Conduct Authority, and your mortgage lender that the deposit monies can be properly accounted for. After all, arranging a mortgage constitutes financial advice and the broker (and lender) are bound by UK financial regulations.
So anytime you’re considering buying a property, even when you’re doing so as first time buyers or under a home buying scheme, such as Shared Ownership, you’ll be asked to prove the source of your deposit funds. This also counts when you’re taking advantage of a Help to Buy Equity Loan – you’ll still need to prove where your % of the deposit loan has come from.
If your deposit money is in your main bank account or an associated savings account, you’ll need to provide copies of your bank statements for the deposit account to show a steady accumulation of funds over time. Likewise, if you’ve got the money in a Help to Buy ISA you’ll need to provide the statements for that too; again to show the funds accumulating naturally.
Other accepted sources of deposits are as follows: –
- Gifted deposit from family – the lender could ask for a letter from them to confirm that it is indeed a gift and not a loan, and they have no interest in the property. Some lenders say it has to be immediate family, some say it can be extended family. Make sure you discuss with your broker exactly where the gift is coming from, so that they can propose you to the correct mortgage lenders for your circumstances.
- Loan from friends – a few lenders will accept a gifted deposit from friends, again with letters and caveats attached. As there are fewer lenders in the marketplace that will consider a mortgage when the deposit has come from a friend rather than a family member, this could reduce the pool of lenders who will consider you. Therefore, you need to make sure to discuss the source of the deposit loan with your mortgage broker early on in the application process.
- Foreign currency / money that is currently overseas – there are lenders who will be happy with this, but you do need to discuss this with your broker early in the process. This is because there are fewer lenders in the marketplace who will consider foreign funds for your deposit, so your broker will need to know which lenders to propose you too.
- Builder gifted deposit – whilst this is acceptable for some lenders it’s not the case for all, so again you need to raise with your mortgage broker at the beginning of the application process. Lenders who accept this type of gift will have additional restrictions / criteria on the loan. For example, they will want to make sure there’s no charge on the property, or that the client is putting something down too, and there could be restrictions on the LTV amount available. It’s important to seek advice early because of these potential restrictions.
- Unsecured personal loans – not many lenders will accept this as it will dramatically reduce the amount of money you have free each month. For this reason, it will likely be difficult to find either a broker or a lender who will be able to assist if you’ve borrowed the money for the deposit via a personal loan.
- Deposit from own Limited Company – some lenders will be more than happy with this, again because these lenders are quite specialised it’s important to discuss the source with your mortgage broker early on.
- If you’re moving home and raising money on your current home to put down on the new purchase. This is a fairly normal transaction if you’re moving house and will be considered by most mortgage lenders. It can be more complicated if you’re arranging a ‘buy to let’ mortgage on your current property and then letting that property out to move into your new home. Again, discuss this early on with your broker so that they can source the right lender for you.
There’s a pretty easy to follow theme running through this advice: early on in the mortgage application process, once you’ve settled on which type of mortgage you’ll be applying for, you need to talk to your mortgage broker about the source of your deposit. That way, from early on in the mortgage application stage they can guide you towards: – a) the right proofs for deposit source that you need to provide, and b) the right overall mortgage lenders to be proposed to.
Ultimately, so long as you can prove where the deposit funds have come from, an experienced mortgage broker will be able to assist you in finding the right lender for your circumstances. It’s all about communicating with your broker from the outset, and then leaving them to do the hard work in sourcing the right lender for you.