Deposits 101 - where can my deposit come from?

By Jennifer Harrison, Content Lead

Whenever you secure a mortgage to purchase property, you will need to provide some of that money upfront as a deposit. There are several ways you can fund your deposit, but you will be asked to provide proof of where the money for your deposit came from. This article explores legitimate deposit sources and the evidence that might be required.

With almost all lenders asking for a minimum 5% deposit – although 10% and above is preferable – and house prices in the UK averaging at ￡264,500 (as of March 2024), gathering the money for a deposit is one of the biggest challenges facing those looking to purchase property. This is particularly true for first-time buyers, many of whom are trying to balance saving against ever-rising rental costs.

However, personal savings are not the only way you can fund your deposit, with many people using gifts from family, equity from another property, or even inheritance to help them gather the lump sum required. The type of proof you must provide will depend on the source of the funds and, though a mortgage advisor will be best placed to talk you through all the requirements in detail, we’ve pulled together this short guide to help you gain some understanding.

What sources are accepted by lenders and what proof will I need?

The money for your deposit can come from a range of different sources, but regardless, you will be asked to provide proof of deposit. Different lenders will only accept certain deposit sources, so it’s important you discuss this with your mortgage advisor ahead of making your application. Here, we’ve listed some of the most conventional ways people fund their deposit and the proof of deposit required for each instance:

Personal savings

Often the simplest to prove, personal savings are one of the more common ways people fund their deposits. As proof of deposit, you will usually be required to provide up to six months of bank statements so the lender can see the money building up in your account.

Inheritance

If you inherit a large lump sum, you might want to use this money to go towards your mortgage deposit. Most lenders will accept this as a deposit source, but you will need signed documentation from the executors detailing the amount you have received as well as a bank statement that shows the money entering your account.

Gift

With the ongoing cost-of-living crisis, and rental rates extremely high, more and more buyers are accepting help from family members in order to get onto the property ladder. Most commonly, lenders will accept gifted deposits given to you by a close family member such as parents, grandparents, or siblings. However, you will need to provide the lender with a written legal agreement stating that the person giving the money completely intends it to be a gift and does not expect to be paid back or want to claim any ownership of the property in return. A solicitor will be able to help you draft this letter and it must be signed by yourself and the person gifting you the money. Some lenders might accept gifted deposits from more distant relatives or family friends, but this is less common. Similarly, if the person gifting the deposit does not reside in the UK then not all lenders will accept this.

Sale of a property

For home movers, this is normally what makes up the majority of the deposit. Buyers who are moving from one property to another to use the proceeds from the sale of one property as their deposit when securing their next home and lenders are likely to accept this as an adequate deposit source. If you have already sold your property in this scenario, you will need to provide evidence of the sale, possibly your completions statement, as well as proof of the funds entering your account.

Equity release

It’s important to note that, normally, there are minimum age restrictions of 55 years old. This deposit source this is more for parents who want to release equity for their child's deposit. If you have owned a property for some time, or own a property that has increased in value, you may have enough equity to release some and use this money as a deposit for another property. Typically, as you’re likely to use the same lender to purchase the second property using equity from the first, minimal additional proof will be required. You’ll just need to demonstrate through their affordability assessments that you can keep up with repayments on both properties.

New Build Builder's Deposit

This is accepted up to 5% of the total purchase price by most lenders when supported by the UK Finance Disclosure Form for confirmation of amount and subject to applicants having a minimum deposit of 5% from their own resources.

Deposit coming from outside of the UK

Foreign deposits and gifted deposits which originated outside of the UK are accepted by majority of lenders subject to the funds being deposited in the applicant(s)' UK bank account prior to application - normally at least 3 – 6 months prior. Lenders will require an explanation as to the source of these funds to support the underwriting assessment including originating country and how the funds have been raised (ie. savings, sale of assets).

If you’re looking to fund your deposit in another way, for example using cash, bitcoin/cryptocurrency or winnings from gambling, it will be a lot trickier as not many lenders will consider these an acceptable deposit source. This is mainly because these sources are much harder to trace and so it’s difficult to rule out fraud or money laundering.

Unacceptable deposits

Whilst what is acceptable will vary from one lender to the next, there are some deposit sources widely deemed unacceptable. Often, funds withdrawn from a business are not considered acceptable and neither are loans, credit cards, secured loans/mortgages or other forms of credit.

In some cases, your deposit might be a mixture of more than one source, e.g., savings and inheritance combined and, generally, this is deemed acceptable by lenders. As always, a mortgage advisor is best placed to connect you with a lender who is suited to your situation and so we recommend speaking to one before you apply for your mortgage. It’s also a good idea to, where possible, have the deposit money in your account ready for when you make an offer as this will help to speed the process up. Check out our 6 top tips for saving your house deposit .

All information contained on this blog is for general information use only. It does not provide mortgage advice and should not be construed as being mortgage advice, which can be provided by your mortgage broker and advisor only.