A mortgage broker has warned that having the cash is not always enough
It’s not unusual for parents to help with deposits(Image: DMP via Getty Images)
An increasing number of first-time buyers are relying on the Bank of Mum and Dad or grandparents to contribute towards their deposit in an effort to escape the rental market and secure a foothold on the property ladder. Building up a deposit can prove mountainous for would-be purchasers, particularly at a time when inflation is climbing, meaning funds provided by relatives can frequently make the crucial difference between buying and remaining a tenant.
However, one broker has cautioned that, for certain lenders, ‘gifted deposits’ from family members don’t always cut it, even when the deposit that’s been gifted represents a substantial percentage of the property’s value.
Broker Gaurav Shukla, CEO of Marlow-based Home Me Mortgages, revealed a client of his was recently rejected by a major high street lender despite the gifted deposit accounting for 14.5% of the property’s value – 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 explained that when the lender turned down the mortgage with a 14.5% gifted deposit, his client drew upon £20,000 from his own savings to demonstrate his commitment to the property, bringing the gifted deposit down 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 revealed the lender’s grounds for refusing the loan centred on 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.”
Following the second refusal, Gaurav moved to a competing high street lender which promptly approved the mortgage with the complete £40,000 deposit as 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.”