Saving for a deposit is the toughest part of the homebuying process for nearly all first time buyers – but a bit of knowledge on how it works can help ease the stress
Most lenders require you to put down a deposit of at least 5% of the property value. And each lender will have its own specific criteria on where that money comes from. In other words, your deposit source may or may not be acceptable to all lenders.
If you’ve saved a deposit and perhaps don’t think you’ve saved enough yet (or ever will!), the Shared Ownership scheme might help. As the deposit is based on the value of the share you are purchasing, rather than the full value of the property, a deposit of £3,125 could get you into a £250,000 home!
Property Value £250,000
25% Shared Ownership Outright Purchase
5% Deposit £3,125 £12,500
In either instance, lenders will need to understand not just how much deposit you have, but also where it came from. This is part of anti–money laundering checks and helps them assess risk. It may feel very intrusive, but the lenders are simply trying to abide by the law.
Savings
For money to be classed as savings, it needs to have been accumulated over time from your own resources – that is your own sources of income from employment or self- employment. As opposed to money given to you or obtained via other means, which may fall into another category and require different evidence.
To prove the build-up of savings, your bank statements/savings statements will be necessary to evidence the deposit. Where money has moved between accounts, it is important that a full audit trail can be provided to trace the funds. As you near the purchase of your property, avoid moving money around where possible, as this will only result in a more complicated trail and more documents being requested from you.
Gift
Gifted deposits are extremely common for first time buyers to use – thank you Bank of Mum and Dad! Gifted deposits can also be received from other people, but the lender will need to understand who the gift is coming from and they may have criteria as to who they will or won’t accept providing the gift.
Most lenders only accept a gift from a direct family member. This usually means your parent, grandparent, or sibling – ie a direct blood line. This is considered (by the lender) as lower risk, as it makes sense why these people would have a genuine interest in helping you with your deposit.
For any gifted deposits, the giftor (person giving you the money) will need to sign paperwork to confirm that their gift to you is non-repayable (ie not a loan) and that they are not acquiring any interest in the property themselves. This means that they would not be able to try to claim ownership over your property in future years, just because they helped you with a deposit. This is known as a “true gift” and why this is different from a loan of money towards deposit, which is generally not an acceptable source.
Other Sources
Deposit from other sources such as inheritance, property sale or other windfall can also be acceptable. The key is, can the funds be evidenced and traced back to a suitable source?
In short
You can buy Shared Ownership with a much smaller deposit than any other buying scheme.
The strongest mortgage applications combine a solid deposit with clear, well-documented evidence of its origin.
If your deposit comes from multiple sources, expect to provide documentation for each one. And remember, it might feel a bit intrusive..!
If you’re unsure, it’s worth speaking to a mortgage adviser early – a broker like Metro Finance can help you prepare the right paperwork and avoid delays during the approval process.
Your home may be repossessed if you do not keep up with repayments on your mortgage
There may be a fee for mortgage advice of up to 1% of the amount borrowed. A typical fee is £499, but this will depend upon your particular circumstances
First Time Buyer is an exciting bi-monthly glossy which takes a stylish and comprehensive look at all the options available, setting them out in an entertaining and informative way, and helping potential customers navigate their way through what is often a daunting and complex process. We dispel the myths, reinforce the facts and arm the reader with the tools necessary to make their homeownership dreams a reality.
