What the Mortgage Proof of Deposit Is - And Why You Need It

The idea of falsely claiming to have a deposit on hand to obtain a mortgage is not one many of us would likely consider, but it is still something lenders have a responsibility to check thoroughly. A mortgage proof of deposit is an important part of making sure your mortgage application is smooth.

As part of our comprehensive mortgage advisory and broker service, Clifton Private Finance are here to help guide you through your mortgage application, avoiding delays in getting your mortgage by working with you to get your proof of deposit ready in plenty of time.

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Table of Contents

1. Why Do Lenders Need a Proof of Deposit?
2. What Is An Acceptable Proof of Deposit?
3. Proof of Available Funds
4. Provenance
5. Common Problems with Proof of Deposit
6. Getting your Proof of Deposit Ready with Clifton Private Finance

Why Do Lenders Need a Proof of Deposit?

There are two main reasons your mortgage lender will want proof that you have the money available for your deposit: to make sure you have the necessary financial stability, and to prevent fraud.

While it is rare that anyone would say they have a deposit when there’s nothing in the bank to back it up, people have been known to exaggerate a little regarding their finances when applying for a mortgage - perhaps planning to make up the shortfall before it’s needed. Or, as can easily happen, they have the mortgage deposit all ready but find themselves dipping into it for day-to-day needs before the application is finalised. In either case, this would mean you don’t quite have the stable financial position your lender is looking for. Locking the full mortgage away in plenty of time is always the best idea.

It is also unfortunately true that mortgage deposits are an area where fraudulent activities, such as money laundering, can be focused. With a substantial sum being transferred between accounts, it’s essential that the lender is assured that everything is being done above board.

Enter the proof of deposit - a clean and simple bit of documentation that reassures everyone.

Case study: Our case study below details how we saved our client over £37,884 by switching lenders.

What Is An Acceptable Proof of Deposit?

Proof of deposit comes in two forms. The first is the more obvious one - documentary evidence that you actually have the money available. The second comes under the idea of ‘provenance’ - providing a paper trail as to how the deposit has come about.

Proof of Available Funds

Proving you have the money available to transfer can be done with any of the following:

• Savings - Bank statement showing that the funds are available.
• Property Sale - A solicitor’s completion statement that details the funds incoming from a current property sale.
• Inheritance - A grant of probate or solicitor’s letter confirming funds incoming.
• Investments - Statements that detail the sale of assets and transfer of funds.
• Cryptocurrency (if available) - A transaction history and show of current balance.

Provenance

Proving provenance means showing where the money has come from. A sudden influx of tens of thousands of pounds into your bank account is going to look unusual for most mortgage applicants and the lender is going to undertake a period of due diligence to make sure that the money is legitimate.

This can be smoothed by having full provenance documentation:

• Savings - Showing bank statements stretching back three-to-six months, with the regular deposits into your savings account, will be expected. Any large, unusual deposits will need to be qualified, so be ready to provide additional paperwork for any irregular sums (for example, if you got a bonus from your work and immediately put it towards the deposit, include the relevant payslips).
• Gifted Deposits - A deposit gifted by a family member or friend may not be a loan and cannot be provided under any sort of duress. Any gifted deposit will need to come with a letter from the donor that clearly states it is a no-obligation gift. This includes any large donations that may form part of your savings history. It’s also worth noting that many lenders will want to see the provenance of the donation, thus your family member may need to make their ID documents and bank statements available as part of the proof of deposit.
• Inheritance - In some cases, the lender may ask to see information regarding any large inheritance, including documentation collated for the estate finances. Again, this is to follow anti-money-laundering procedures.
• Cryptocurrency - Because it is far more difficult to track provenance with cryptocurrency, many traditional lenders are wary regarding deposits that have been provided through large, untraceable cryptocurrency transactions. If you plan to use money invested in cryptocurrency as your mortgage deposit, it is worth discussing your financials with a specialist mortgage broker before moving ahead - you don’t want to find your mortgage unexpectedly blocked at a late stage. At Clifton Private Finance, our mortgage team have the expertise to help with cryptocurrency-based mortgage deposits, with established relationships with specialise lenders more understanding of your financial position. With cryptocurrency, it is important to have as much documentation as possible to prove provenance as every assurance you can provide will help speed up your application.

Case study: Read our case study below on how we helped our client secure a first-time buyer mortgage despite credit issues.

Common Problems with Proof of Deposit

In most cases, proof of deposit is a simple formality. However, there are some problems that occur more than others. These include:

• Unseasoned deposits - A deposit that has suddenly appeared in your bank account is considered ‘unseasoned’. If possible, you should have the funds in place for a few months before making your final application, showing financial stability as well as helping with provenance.
• Privacy issues with gifted deposits - Family members, especially those from an older generation, may be more private with their finances and find the idea that your mortgage lender wishes to scrutinise their personal finances as part of your mortgage application distasteful. For this reason, it’s really important that you explain the process to anyone before you accept their deposit gift. Talk the situation through in full and reassure them that it’s a standard practice to prevent money laundering and fraud. Advisors at Clifton Private Finance are happy to speak to your donor to add professional reassurance or provide them with a letter or email if needed.
• Gift-not-loan problems - Because a loan has a significant impact on your affordability assessment, gifted deposits need to come with a letter that clearly (and legally) guarantees that you are under no obligation to repay the money, nor that the family member has any stake in your house once it has been bought. It is a common misunderstanding among many people, that a ‘gifted’ deposit is a loan, or that they can ask for the money back at a later date - this is never the case. Of course, family members and friends can lend you money towards your deposit, but this must be clearly stated as such and will have a negative impact on your affordability and stress test calculations. Speak to a specialist at Clifton Private Finance to understand the finer nuances between gifts and loans for deposits.
• Unverified cash deposits - Money coming into your savings that leave no paper trail can be problematic, especially if they are large or frequent and have no clear source. Your lender is legally obligated to scrutinise anything suspicious and income that cannot be identified may be a clear problem.
• Gambling winnings - Money that comes from gambling raises all sorts of red flags with lenders. Many gambling winnings fall under the category of ‘unverified cash deposits’, while even those that have a clear paper trail and provenance will show that you are gambling with your money - an activity that is never seen by lenders as a positive or reliable quality. Some winnings, such as those that come from a visible National Lottery win, are less problematic than others, but on the whole you must expect application delays as your lender pays particular attention to any gambling income.

Getting your Proof of Deposit Ready with Clifton Private Finance

Our mortgage experts at Clifton Private Finance have all the experience you need to have a smooth application process. We will help you get your proof of deposit documentation all ready in advance, and will go through it with you to ensure nothing is missing. When you partner with Clifton PF, you are assured a high level of professionalism with your mortgage application that helps you get accepted easier and moves your mortgage along quicker.

For the best rates, most flexible terms, and dedicated, personal help getting every aspect of your application completed efficiently, speak to Clifton Private Finance today.

To see what we can do for you, call us on 0117 313 5980 or book a free consultation below.

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