An expert has explained a situation where the source of the deposit was the problem
The customer was turned down, the broker said(Image: Dominic Lipinski/ PA)
More first-time buyers than ever are turning to the Bank of Mum and Dad or grandparents to help with their deposit in a bid to finally get out of the rental market and onto the property ladder. Saving for a deposit can be an Everest for aspiring buyers, all the more so at a time when inflation is rising, and so funds gifted by family members can often be the difference between buying and not buying.
But one broker has warned that, for some lenders, ‘gifted deposits’ from family members are not always enough, even when the deposit that has been gifted amounts to a decent percentage of the value of the property being purchased.
Broker Gaurav Shukla, CEO of Marlow-based Home Me Mortgages, said a client of his was recently turned down by a major high street lender despite the gifted deposit being 14.5% of the value of the property — or £40,000 on a property valued at £275,000.
“I was extremely surprised by this decision, as 14.5% is by no means a small percentage at a time when many people are buying with just a 5% or even no deposit. It was all the more surprising given that my client had no bad credit issues, earns £50,000 a year and was borrowing at 5.5x income, which is not out of the ordinary for a first-time buyer and one who certainly wasn’t stretching himself to the limit.”
Gaurav said that when the lender declined the mortgage with a 14.5% gifted deposit, his client used £20,000 of his own savings to show that he was committed to the property, reducing the gifted deposit to £20,000.
He said: “We thought the fact that my client was not putting in any of his own money, which he had available as savings, might be the reason why the lender refused him and so we reapplied with £20,000 of the deposit coming from his own savings, but that still didn’t work.”
Gaurav said the lender’s reasons for declining the loan were multiple high-risk factors.
He said: “They said the loan-to-value (LTV) was high when it wasn’t at all, the borrower had enhanced affordability, which he did but it wasn’t extreme, and was a first-time buyer with just a small personal stake in the property. But I fail to see how £20,000 on a property worth £275,000 is a small personal stake.”
After the second decline, Gaurav switched to a rival high street lender that immediately offered the mortgage with the full £40,000 deposit being a gifted deposit.
He added: “For me, this case goes to show that things are rarely simple in the mortgage world and that lenders sometimes make decisions that simply don’t stack up and are often at odds with their own wider criteria.
“Even my contact at the lender that declined my client said he couldn’t understand it and suggested we appeal, but by then we’d moved onto another lender with some common sense.”