Proof of Deposit for a Mortgage

Proof of deposit for a mortgage is an essential part of the application process and commonly a deposit of between 10 and 30% of the property value is needed to obtain a mortgage.

Most prospective borrowers believe that deposits must be funded solely by personal savings, but this is not the case, although the source of the deposit will need to be proven to the lender during the mortgage application process.

In this guide, we will explore the acceptable sources of mortgage deposits and the method of proving the source of the money and the reasons why this step is undertaken.

Why must a mortgage applicant prove where a deposit comes from?

Anti-money laundering or AML regulations came into force in 2017, with the aim of stopping criminals using professional services to launder money within the UK.

UK law stipulates that prospective mortgage applicants must provide proof of identity, proof of address and to provide details of the source of the deposit to comply with anti-money laundering regulations.

Both lenders and solicitors’ must adhere to the regulations and assess the risks of the source of funds being from legitimate legal sources, and therefore mortgage applicants are asked to provide sufficient evidence of the source of funds.

Evidence can include bank account statements for savings accounts or signed contractual agreements depending on the method of obtaining a deposit.

Lenders will have criteria stipulating the approved sources, and should an application not meet the requirements, an application would be declined.

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What are the approved mortgage deposit sources within the UK?

Each lender will set their own criteria regarding acceptable sources of deposits and therefore it is always worth checking the requirements before making a mortgage application.

However, there are some universally accepted deposits within the UK and these include the following:

Personal savings

Mortgage lenders are always willing to accept deposits funded by the applicant’s personal savings however they may seek proof that the savings balance has grown over time, which can usually be provided by submitting saving account bank statements.

The sale of property

Similarly, proceeds from a sale of property that was previously owned by the applicant are also widely accepted as sources of deposits with mortgage lenders. The proof of the sale of the property can usually be provided by legal documents and bank statements showing the sale transaction.

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Equity released from another property

Should an applicant be in the position to own a second home, for example, equity could be released to act as the deposit on another mortgage?

This is often proven via property valuations being undertaken and specific mortgage products may be required should a property already be owned.

Inheritance

Inheriting money via a will is a common source of deposit and therefore is widely accepted. The proof of the source of funds is usually obtained via a signed document from the executor of the will, along with bank accounts showing the inherited money entering the applicant’s account.

The following sources of a deposit may be accepted by some lenders, however other lenders may not and therefore it is worth checking before making a mortgage application.

Sale of assets

The sale of assets other than property, such as cars, boats, works of art, coins or other valuable memorabilia that have been legally sold could be an acceptable source of funds for a deposit, however, it would depend on the lender.

Gifts

A gifted cash deposit can be an acceptable source of funds for certain lenders however often it would depend on who provided the gift.

If the gift was provided by immediate close family most lenders may accept this, however, a gift from a more distant family member, or family that are not blood-related could problematic.

The proof of a gift could be a signed legal agreement documenting the parties involved and the value of the gift. Meanwhile, gifts from friends are even less likely to be accepted as an approved deposit with lenders.

Gambling winnings

Funds received from gambling winnings are sometimes accepted by certain lenders, however, the level of funds and the frequency of gambling may be a concern for mortgage lenders.

In addition, income from gambling is not deemed an approved source of income and therefore any such income would likely be removed from an application, which could impact passing the lender’s affordability checks.

However, if a one-off large sum of money has been won, for example, a lottery win, some mortgage lenders will accept this with proof of where the money was won and the total value. Cash winnings are therefore more difficult to trace and could raise warnings to mortgage lenders.

Oversea savings

Lenders are likely to be nervous in relation to savings held overseas as the sources of which can be difficult to trace, and therefore this may restrict the number of lenders willing to accept a mortgage deposit financed in this way. One approach may be to utilise a worldwide respected and established bank so that the finances can be legally traced.

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What mortgage deposit sources are not acceptable within the UK?

There are a number of financial sources that are not deemed acceptable with mortgage lenders as follows:

Unsecured borrowing

Most lenders will not accept a mortgage application with lending as the source of a deposit as this will impact the affordability of the applicant as both the mortgage and the deposit borrowing would need to be repaid each month, increasing the risks to the lender of a defaulted mortgage.

Cash

Due to traceability concerns, a cash deposit is not acceptable with most mortgage lenders. Most professional services will not take cash as a payment method due to the concerns of money laundering and therefore if you have obtained a large amount of cash it would be best to seek legal advice regarding the options available before applying for a mortgage.