A broker has shared a client’s experience of being rejected for a first-time buyer mortgage despite a £40,000 deposit
Gaurav Shukla(Image: Gaurav Shukla/Newspage)
An increasing number of first-time buyers are relying on financial help from parents or grandparents to secure their deposit as they attempt to escape the rental market and step onto the property ladder.
Building up a deposit can prove a monumental challenge for prospective buyers, particularly during periods of rising inflation, meaning contributions from family members can often make the crucial difference between purchasing a home or not.
However, one broker has cautioned that, for certain lenders, ‘gifted deposits’ from relatives aren’t always sufficient, even when the gifted sum represents a substantial proportion of the property’s value.
Broker Gaurav Shukla, CEO of Marlow-based Home Me Mortgages, revealed that one of his clients was recently rejected by a major high street lender despite the gifted deposit totalling 14.5% of the property’s value – £40,000 on a home 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 rejected the mortgage with a 14.5% gifted deposit, his client used £20,000 of 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 that the lender cited multiple high-risk factors as grounds for refusing the loan.
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 rejection, Gaurav turned to a rival high street lender, who promptly approved the mortgage with the entire £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.”