Applying for a mortgage can be a complex and stressful process – especially now that Covid-19 has made the application process tougher and longer. What most mortgage applicants worry about are mortgage rates, whether they'll pass the affordability test and have enough of a deposit to secure the home they want. But did you know that there are other things you may need to consider, such as identity and anti money-laundering checks? You wouldn't want to fall at the last hurdle, so iron out these details* before submitting your application.
1. Gifted deposit? Make sure you have all the paperwork
If you’re lucky enough to receive help from your family or friends in the form of a gifted deposit towards your home purchase, there are a few considerations you should make. Lenders and solicitors will always question the source of your deposit, so it’s important to explain to your mortgage advisor from the outset exactly where the money has come from.
This is especially true in the case of gifted deposits, as large sums of money being transferred into an account are flagged as unusual activity, and may warrant anti-money laundering investigations or harm your mortgage application.
Providing proof that your deposit is a gift and not a loan is also an important step to consider. This can be a signed letter or document outlining that the deposit is a gift, which is typically enough to satisfy lenders. The signed document should clearly state that the deposit is not a loan and doesn’t need to be repaid. In addition, it should also state that the gift doesn’t grant your friend or family member any rights to the property. Your mortgage advisor can provide you with a document template if you’re unsure.
2. Do the same for deposits from inheritance
The most common source of deposit for a home is from personal savings or inheritance. Both of these funding sources should be accepted by mortgage lenders without issue. However, additional checks may need to be completed to clarify the source of the money, so make sure that you can prove your claim to the inheritance and there is documentation showing exactly where the money has come from, and where it’s been since you claimed it.
Lenders very rarely require additional checks for personal savings, but, if you have had big salary changes that have helped to contribute towards your savings, it can help to have older payslips on hand to verify your previous income.
3. Don't attempt to top up your deposit with your credit card
Credit cards are high-risk, unsecured loans, and as such will almost certainly get your mortgage application rejected if you try to use them for part of your deposit. With credit card accounting for 39 per cent of all identity fraud cases in the UK, it's no wonder that lenders will want to steer well clear of them as a means of payment.
4. Register on the electoral roll
This is not just important for building up your credit score: there's just no way to get a mortgage without being registered. Registering on the electoral roll helps to prove your identity and make sure you are who you say you are, as it enables lenders to check your information and confirm your name, address and residential history. The electoral register is the most reliable source of this information and needs to be up to date.
5. De-link from ex-partners
If you're in the process of getting a divorce, it is best to ensure all financial ties between you are severed before you apply for a mortgage.
When taking out loans or bank accounts with another person, typically a partner, you become financially linked to them and their activity can impact your credit score and how lenders see you. This makes it more difficult for those reviewing your application to attribute certain spending patterns to you and can raise suspicion if there are irregularities.
If you believe you may still be linked financially to an ex-partner, contact credit reference agencies and explain the situation to them, they will be able to disassociate you from your ex.
Find out more about mortgages and divorce in our guide.
*Tips provided by experts from anti money-laundering service SmartSearch
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