Is your mortgage lender asking for proof of deposit? Most people buying property will put down a deposit and showing where your mortgage deposit comes from is a crucial part of the mortgage application.
Due to strict money-laundering regulations, your solicitor and lender need to be able to trace the money back to its source to ensure it's legitimate. You must be able to provide evidence of how you funded your deposit so the mortgage can be approved.
But don't worry, providing proof of deposit for a mortgage is often easier than it sounds, and there's more than one way to prove how you funded your deposit. Read on to learn what proof of deposit for mortgage you might need and why.
The Topics Covered in this Article Are Listed Below:
What Is a Mortgage Deposit?
Whether you're hoping to get on the property ladder, self-employed or a landlord expanding your property portfolio, it's likely you'll have to put down a deposit to purchase a property. A mortgage deposit is what you pay upfront during the transaction. A residential mortgage deposit will likely be at least 5% of the property's overall value and you will then borrow the remaining cost of the property in the form of a mortgage. However, your LTV (loan-to-value) and monthly payments may be lower if you make a bigger deposit.
With a larger deposit, you start with a bigger share of equity in your home. You’ll also be able to get a smaller mortgage. Many homebuyers already on the property ladder fund their deposit with money from the sale of their previous residence. However, first-time buyers must find the funds for their deposit elsewhere - such as from savings, a financial gift, inheritance, or sale of assets. You can use our residential mortgage borrowing calculator to get an estimate of how large a mortgage you might qualify for.
What Mortgage Deposit Sources Are Acceptable?
While each mortgage lender will have its own criteria regarding acceptable deposit sources, some are widely accepted. If you use one or more of the following ways to fund your deposit, you're likely to have a wide range of lenders and mortgage products.
- Personal savings
- Property sale
- Equity released from a second property
- Inheritance
Some lenders will also accept mortgage deposits funded by sales of assets, gifted deposits, overseas savings and gambling winnings.
When Do You Need Proof of Deposit for a Mortgage?
It's normal for mortgage lenders to ask you to prove where your mortgage deposit comes from as part of the mortgage application process. This can include signed contractual agreements, bank or savings account statements, a proof of deposit letter and any relevant certifications. What you need to provide will largely depend on how you're funding your deposit.
Savings
Many people, especially those buying their first home, use savings to fund their mortgage deposits. The savings generally accrue as money put aside from their income. The evidence usually required for this type of deposit involves 6 months' worth of bank statements that display regular payments coming from a valid income source and the money gradually growing in a savings account. If you have multiple savings accounts, you'll need to provide statements for each account.
Equity from Another Property
If you're funding your deposit through releasing equity from another property, you may not be required to provide proof if you're using the same lender. They will already have records of the transaction. However, you will need to prove that your income is enough to cover repayments on a larger mortgage.
Sale of Property or Other Assets
If you're using the money made from selling property or other valuable assets to generate a lump sum, you'll need to provide evidence of the transaction. This can be in the form of ownership documents and proof of sale. You'll also need to provide bank account statements that show the money coming into your account from the buyer or solicitor. You may also need to provide a copy of the completion statement if you've sold a property.
Gifts
You'll need to provide proof of a gifted deposit for a mortgage, such as a formal legal agreement confirming the money is a gift. This agreement, signed by all parties involved, must confirm the value of the gift and that the provider has no rights over the property and doesn't expect it to be repaid.
Inheritance
To use inherited money to fund your mortgage deposit, you'll need to get a certificate of deposit inheritance from the executors. The certificate should display the amount of money you've received as a beneficiary. You'll also need to provide a bank statement that displays the amount deposited from the executor or solicitor.
Overseas Savings
While it's possible to fund a deposit by using savings overseas, it's much easier for solicitors to trace the money if it comes from an established bank account. This helps them rule out any potential money laundering or fraud. You'll need to provide documentation similar to that of a UK savings account, showing regular payments from traceable sources.
Gambling Winnings
Some mortgage lenders will allow you to use winnings from gambling to fund a mortgage deposit. You'll need to provide a receipt detailing where you won the money and how much, and a bank statement that shows the payment made into your account. You may find it difficult to provide adequate proof if the winnings were paid in cash.
Compensation Settlement
If you've been awarded compensation and want to use it for your deposit, you'll need a copy of the letter confirming the compensation award from a solicitor or court. You'll also need to provide a copy of your bank account statement, showing the money received into the account from the court, solicitor, or third party.
Sale of Shares
To fund your mortgage deposit with proceeds from the sale of shares, you'll be required to provide a copy of the share release schedule and a bank account statement with details of the money transferred to your account.
Cash
While you may have a legitimate explanation of how you acquired a large sum of cash for the deposit, you may find it difficult to get it approved by lenders if they can't trace its source.
Why Do You Need Proof of a Deposit for a Mortgage?
Mortgage borrowers in the UK must provide proof of identity and address and disclose where the money for their mortgage deposit came from as an essential element of the mortgage application process.
This is due to stringent money laundering regulations that solicitors and lenders must follow. They will carry out rigorous checks to ensure legal and legitimate sources have funded your mortgage deposit. You can prove the source of your deposit, for example, by providing contractual agreements, certain forms of certification and bank account statements.
When to Show Proof of Deposit for a Mortgage
Some lenders may provide a mortgage offer in principle without requiring you to prove the source of your deposit. However, this is a non-binding agreement and shouldn't be taken as a confirmed mortgage offer. For a full mortgage offer, you'll need to show proof of deposit.
Therefore, it's wise to start gathering your documentation as soon as you've chosen a lender. This may include making copies of your bank statements, requesting a proof of deposit letter from your bank, or asking your solicitor to draw up a legal agreement to cover a gifted deposit. Getting all your documentation in order as early as possible will help avoid delays and potentially speed up your lender's turnaround time.
Can I Get a Mortgage Without Putting Down a Deposit?
It's possible to get a mortgage without putting down a deposit. However, you may have a slim choice of lenders and mortgage options. The most common type of zero deposit mortgage offered by some lenders is a Family Springboard Mortgage, where your relative puts money into a linked savings account with a lender or has a charge put on their property. This is a potential option if you can't save for a deposit.
Where Can My Mortgage Deposit Come From?
Want to know where your mortgage deposit can come from? See our guide for information on legitimacy and which sources lenders deem acceptable and unacceptable.
Mortgage Deposit Guide
How much deposit will you need for your mortgage? We explain how mortgage deposits work, what LTV is, how your deposit affects your mortgage and more.
First-Time Buyer Mortgages
If you’re thinking of buying your first home, discover the latest advice and the best first-time buyer mortgage rates available on the market with John Charcol today.
Gifted Deposit Mortgage
Can you get a mortgage with a gifted deposit? Find out in our guide. We explain what a gifted deposit is, how it works, the benefits, risks and more.