A mortgage broker has recounted the experience of a first-time buyer client who was rejected for a home loan despite having a substantial £40,000 gifted deposit, illustrating the increasingly complex landscape of property financing.
The Challenge of Building a Deposit
Many first-time buyers are turning to family members for financial assistance to accumulate a deposit, especially during periods of high inflation. While such gifted deposits can be the deciding factor in purchasing a home, one broker warns that not all lenders view them favourably.
Gaurav Shukla, CEO of Home Me Mortgages based in Marlow, revealed that his client was turned down by a major high street lender even though the gifted deposit represented 14.5% of the property value — £40,000 on a £275,000 home.
Surprising Rejection
Shukla expressed astonishment at the decision, noting that many buyers currently secure mortgages with just 5% deposits or even zero deposits. He pointed out that his client had no credit issues, earned £50,000 annually, and was borrowing at 5.5 times income, which is standard for a first-time buyer.
After the initial rejection, the client added £20,000 of his own savings to the deposit, reducing the gifted portion to £20,000. However, the lender still declined the application, citing multiple high-risk factors.
Lender's Rationale
The lender claimed the loan-to-value ratio was high, though it was not, and noted enhanced affordability and a small personal stake. Shukla disagreed with the assessment, arguing that £20,000 on a £275,000 property is a significant personal investment.
Following the second rejection, Shukla approached a different high street lender, which approved the mortgage with the full £40,000 as a gifted deposit.
Lessons Learned
Shukla commented that this case demonstrates the inconsistency in mortgage lending decisions, where criteria can be applied unpredictably. He added that even a contact at the original lender could not explain the rejection and suggested an appeal, but by then the client had moved on to a more reasonable lender.
