No-one can buy a house without having the money to pay for it – an obvious statement, I know. However, one of the most important jobs conveyancers have to carry out, is to make sure we know exactly where the deposit is coming from that you are using to buy your property.
We need to establish, if you like, an “audit trail”.
What is a deposit?
Your deposit is the difference between the purchase price and the amount of any mortgage you are taking out. So, if you are buying for £200,000.00, and taking out a mortgage for £150,000.00, your deposit is £50,000.00.
Why do we need to know where the money is coming from?
There are two reasons we need to ask you where your deposit is coming from.
Firstly, as responsible solicitors we carry out stringent anti-money laundering checks in all cases. That means we need to know you – who you are, why you have asked us to look after you, and how you are financing your purchase.
Secondly, if you are using a mortgage to help buy the property, it is likely that we will be looking after your mortgage lender as well. Your mortgage lender also needs us to check the source of your deposit.
It is likely that the information needed by your solicitor will also be needed by your mortgage lender during the applications process.
What do you need to do?
It is very important, before you instruct your legal adviser, that you have documented proof of your finances available. Without it, there may be delays caused not only in the conveyancing process but in the mortgage application process.
What you need to provide of course depends on the source. As a helpful guide, below are the most common sources of deposit and some hints and tips for having the right information available when you start the process.
Savings & Investments
When we think of “savings”, this suggests a regular pattern of deposits into a bank account. Where this is the case, you should have your last three months’ bank statements available to show this. If there have been unusually large deposits into the account, you should also have available the statements showing the source of these deposits.
Commonly seen forms of investments are share portfolios, pensions and premium bonds, though of course there could be others. Here we would suggest obtaining a statement of value from the institution where the investment is held, or a statement from a third party broker who may be managing your investment affairs.
Equity from a sale
It may be that your deposit is coming from the sale of a property. If this has already been completed, you should provide a copy of the completion statement given to you by the solicitors, together with a bank statement showing the proceeds of the sale being transferred into your account. If the sale is ongoing, make sure that your solicitor (if they are not also dealing with the sale) has the contact details for the solicitor dealing with your sale.
Third party gift
Phrases such as “bank of mum and dad” are being heard more and more as parents, grandparents, relatives and sometimes friends provide financial assistance to buyers in increasing numbers. The most important word is “gift”. You should be aware that a “gift” means exactly that; the money is being given to you, unconditionally and without any requirement for repayment. You should make sure that anyone proposing to contribute is aware of this. It is quite common (and reasonable) to think of a gift as your money, after all it has been given to you, however from a mortgage lender’s point of view this is classed as money from a third party.
Third party loan
This is particularly relevant where you are buying with the assistance of mortgage finance. Whilst you should always seek specialist financial advice in these matters, generally mortgage lenders do not like there to be other parties lending money to you. The main reason is that this can have an impact on the affordability calculations the lender carries out when assessing your suitability for the mortgage.
Examples of third party loans could be:
- A loan from a parent or relative
- Paying some or all of your deposit on a credit card
- Raising finance (by, for example, remortgage) on other assets such as second properties
If you are borrowing some or all of your deposit from a third party make sure you have the details of the third-party lender and the details of the loan, for example, the amount, term, interest charged and of course any repayments to be made.
For new properties, the government’s Help to Buy scheme is a third party secured loan but is acceptable to a number of main mortgage lenders. Again, you should make sure you take specialist advice in this regard.
Our Conveyancing team is accredited by the Law Society’s Conveyancing Quality Scheme so you can be assured that you will receive a high standard of service and client care. Contact us today for a no obligation quote, call 0800 138 0458.
Disclaimer: The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice, and the law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice on their own particular circumstances.