Understanding the Source of Funds
Saving for a mortgage deposit is often the biggest hurdle for aspiring homeowners. Once you’ve built up your funds, the next step involves showing your mortgage lender exactly where that money came from. This is a crucial part of the application process, designed to prevent fraud and ensure the funds are legitimate.
Common Sources of Your Deposit
Most mortgage deposits come from a few key places:
Your Own Savings
This is the most straightforward source. Lenders will typically want to see a history of these savings building up in your bank accounts over time.
Sale of an Existing Property
If you’re moving home, the equity from the sale of your current property will likely form a significant portion of your deposit.
Investments
Funds from maturing investments or the sale of shares can also be used.
Inheritance
If you’ve recently inherited money, this can contribute to your deposit.
Gifted Deposits
This is a common way for family members to help loved ones onto the property ladder, and it comes with its own specific requirements (more on this below).
Why Lenders Need to Know the Source
Lenders have a legal and regulatory obligation to verify the origin of your deposit. This is primarily to:
Prevent Money Laundering – Ensuring funds haven’t come from illegal activities is a key priority.
Confirm Legitimate Funds – Lenders need to be sure the money is genuinely yours or a legitimate gift and not a loan disguised as a gift, which could impact your affordability.
Proving the Origin of Your Deposit
The evidence required will depend on the source of your funds. Here are some common examples:
Your Own Savings
Bank statements showing the accumulation of funds over several months (usually 3-6 months) are typically required.
Sale of an Existing Property
A solicitor’s letter confirming the sale and the net proceeds will be necessary.
Investments
Statements from your investment provider showing the value and eventual withdrawal of funds.
Inheritance
Official documents like a Grant of Probate and bank statements showing the funds being transferred to you.
Understanding Gifted Deposits
A gifted deposit is when a close family member (usually parents, grandparents, or siblings) provides funds to help with your deposit. While this is a generous way to assist first-time buyers or those moving, lenders have specific rules around gifted deposits:
Proof of Gifter’s Identity and Funds
The lender will need to verify the identity of the person gifting the money and the source of their funds. This often involves providing their ID and bank statements.
Gift Letter
The gifter will need to sign a “gift letter” confirming that the money is a genuine gift and not a loan that needs to be repaid. This letter will also state that they have no ownership rights to the property.
Relationship to the Applicant
Lenders usually have restrictions on who can gift a deposit, typically limiting it to close family members.
Solicitor Involvement
Your solicitor will also play a role in confirming the gifted deposit and ensuring the necessary documentation is in place.
How We Can Help?
Understanding the requirements for proving your deposit’s origin can feel like another layer of complexity in the home-buying process. At Orwell Mortgages, we’re here to simplify things for you. We can:
- Explain the specific documentation needed based on your deposit sources.
- Guide you and your family through the process of providing evidence for gifted deposits.
- Liaise with lenders and solicitors on your behalf to ensure a smooth application.
- Answer any questions you have about the source of your funds.
Don’t let questions about your deposit hold up your homeownership dreams. Get in touch with us today for expert advice and support in navigating this important step.
Your home may be repossessed if you do not keep up repayments on your mortgage.