APPLYING for a mortgage is always stressful, but a surprising red flag meant Leigh and Patrick struggled to find a lender to help them onto the property ladder.
The couple, who live in Norwich, were eager to get a place of their own after growing “increasingly frustrated” at having to manage rising costs on their rental property.
Leigh, 42 and Patrick, 43, were paying £900 a month in rent for a two bedroom home in Norwich, Norfolk, with their rent rising by £50 in a year.
After spotting a new housing development nearby that was within their budget, they were eager to cease the opportunity to get their own place.
The pair had been gifted several thousand pounds towards their deposit from family members in Ireland, which they thought would be the key to unlocking their dream property.
But the couple were shocked to find that many lenders were automatically declining their mortgage application for this exact reason – and it almost cost them their dream home.
Lenders may reject a mortgage application when the deposit funds come from abroad, because it can be viewed as a financial risk.
Nicholas Mendes, mortgage technical manager, at John Charcoal, explained this is because lenders view overseas transactions as being at risk of money laundering.
“Lenders are required to comply with strict anti-money laundering regulations, and funds from foreign sources can raise red flags,” he explained.
“Verifying the origin of these funds can be more difficult.
“Additionally, funds from abroad often come in foreign currencies, which can introduce uncertainty due to fluctuating exchange rates.
“Lenders may see this as a risk, as the value of the deposit might decrease if exchange rates shift unfavourably before the mortgage process is complete.
“This could affect the loan-to-value (LTV) ratio, making the deposit smaller relative to the property value.”
But, this wasn’t the only hurdle to do with it coming from overseas that the couple had to overcome.
The family’s bank also refused to send the necessary statements to Leigh and Patrick’s bank because they were based in a different country.
Leigh said: “The bank had to send the statements over to Ireland, only for our family to have to send them back to England.
“The first bank statement they sent then had the wrong date, so they had to be re-requested, and the process had to be repeated again.
“We were so worried we’d lose our hold on the property we were hoping to reserve, but thankfully, the developer was very accommodating.”
These statements can be vital for helping lenders confirming that the funds are legitimate.
The couple sought the help of The Mortgage Advice Bureau (MAB) to find a lender that would accept their deposit.
Danny Belton, head of lending at the MAB, said, “For those in receipt of a gifted deposit they will need to show proof that it is from a legitimate source.
“For example, if the person has sold a home and gifted money from this, you’d need to show proof. If it has come from savings you’ll need to show evidence of the savings.
“The lender will ultimately need to be confident that this money is not a loan that will be called back and is legitimately owned and able to be gifted by the person sending the money.
“This can add delays to the buying process, but getting advice from a broker who can go through everything that’s required, might be the best bet to get you mortgage ready as quickly as possible.”
With help from MAB, the couple eventually managed to secure their three-bedroom home in Norwich in August 2023 through the shared ownership scheme.
The house cost £290,000 and Leigh and Patrick own 75% of it.
They took out a shared ownership mortgage of £206,625 for 27 years with fixed rate of 5.6% for five years.
Their monthly mortgage payments are £1,275 a month, while they pay £166 in rent – a total of £1,441 between them, or £720.50 each.
Leigh said: “Our broker was in contact with us every step of the way, and worked hard to find the most suitable option for us – one that was both affordable and offered a competitive interest rate.
“With the exception of the bank and deposit issue, we were quite surprised at how easy the mortgage application process was, and we have MAB to thank for that.”
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
A shared ownership scheme is where you buy a share in a property rather than the entire home.
You then pay rent to a landlord on the amount you don’t own.
Leigh and patrick said they had never heard of shared ownership before and had some reservations at first.
“Initially, we were concerned about the fact that you still pay rent on top of the mortgage, as well as the cost of the service charge on top of the other payments,” Leigh said.
“However, we figured that as rental costs were almost as much as a mortgage, it would be best to pay a little more and have the security of home ownership.”
Leigh said she now recommends the scheme to any wannabe homeowner who is concerned about high mortgage rates.
“Definitely get your affordability checked for Shared Ownership,” she added.
“You can buy a percentage of the property from as low as 25%, and you don’t have to worry about landlords breathing down your neck or suddenly deciding to sell up.
“Plus, as property values increase, so does the value of your percentage. It’s a fantastic option for first time buyers to get on the property ladder.”
Now settled into their home, the couple say they are “thankful to the scheme that gave us the opportunity to achieve our home ownership dreams”.
The main benefit of a shared ownership scheme is that it allows you to buy a home you wouldn’t have otherwise been able to afford.
You can get on the property ladder with a much lower deposit than if you bought the entire home, and you may be able to build up the share you own over time.
This is a particular draw to first-time buyers in the current market who are struggling to save enough for deposits.
One of the major downsides, however, is that you will have to keep paying rent on the part of the house you don’t own alongside your mortgage.
You need to factor both payments into your financial planning when you’re looking to buy through a shared ownership scheme.
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