When buying a property you will need to put down a deposit.
What’s a deposit and how much will you need?
Where will your deposit come from – and where did the funds originate?
A deposit is money being put down towards the purchase (or re-mortgage) of a property. The mortgage will make up the remainder of the value of the property.
For example. You purchase a property for £300,000. You have a deposit of £70,000. Therefore the mortgage you will need is £230,000. In other words, the value of the property, minus the deposit equals the mortgage you will need.
Your deposit can come from many different sources and could be a combination of more than one source. Your deposit details will need to be specified on a mortgage application and these details will include the amount of the deposit and, to comply with anti-money laundering regulations, the source (origin) of the funds being used for the deposit.
A first time buyer’s deposit might come from their own savings, a gift from a close family member or possibly from an inheritance.
The important thing is that to comply with Anti Money Laundering regulations, the deposit source needs to be identified and documented.
If it’s your own savings, then having a record of your savings over the past year would be great – a statement or summary of the transactions is ideal.
If your deposit is coming from a gift, then a letter from the donor (whomever is providing the gift) confirming it’s a gift rather than a repayable loan is required. Confirmation they have the funds available, usually by means of a recent bank or financial statement. Sometimes, lenders will request the completion of their own “gifted deposit template” which would be lender-specific. Your mortgage advisor would provide that for you and ask you to arrange completion of the form.
If the deposit is coming from an inheritance then there should be an official letter or correspondence of some kind (from a solicitor) confirming you are the beneficiary and the amount of money involved. The requirement would be the letter plus a bank statement showing the money being transferred into your account (the amount should match the amount specified in the correspondence). If the inheritance was received some time ago, a current statement showing the money still available in your account would be required.
One way to help first time buyers boost their savings is to take out a Help To Buy ISA. A first time buyer could receive a maximum £3,000 bonus if they manage their savings in an official Help to Buy ISA account. As a first time buyer, you would use these savings towards the deposit on your new property. The scheme is available for ANY first time buyer to take advantage off. So if there were 2 x first time buyers buying a property together, they could both use their Help to Buy ISA funds which could then potentially include up to £6,000 of funding from the Government.
For more details click here: Help to Buy ISA
A “next time buyer” would normally provide the deposit for a new purchase from equity within their current property. This equity would be released as cash on the sale of the existing property and then used as the deposit for the new purchase. If the new purchase was being funded with additional deposit (over and above the equity from the existing property) then the source of the additional funds would need to be verified in the same way as a first time buyer’s deposit.
If the deposit is coming from the sale of a previous property then there will be documentation from a conveyancer confirming the sale the amount of money being paid to you as a result of the sale (after any mortgage has been redeemed and any fees have been settled). That documentation plus a bank statement showing the deposit into your account by the conveyancer should be used as verification of the source of deposit.
If you are re-mortgaging a property in order to raise funds for your deposit then normally a copy of your mortgage offer would be required by the lender before completion. If the re-mortgage application is being submitted at the same time as the new purchase mortgage then initially a mortgage illustration would be expected until such times as you have a mortgage offer which will confirm the availability of the deposit funds.
If you are buying an investment property then the source of your deposit may be any of the above and the requirement to confirm the source of the deposit will be the same.
For more information or if you have any questions please don’t hesitate to get in touch!
Think carefully before securing debt against your home, your home may be repossessed if you do not keep up repayments on your mortgage.
The Financial Conduct Authority does not regulate Buy to Let mortgages.
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Your home may be at risk if you fail to keep up the repayments on your mortgage.
The Financial Conduct Authority does not regulate Buy to Let mortgages.
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