The essence of genuine savings is to confirm and verify the savings pattern of a borrower looking at purchasing a home. The logic is simple, if a client could save money consistently over a 3 or 6 month period, then he/she has the capacity, in terms of responsibility, to repay a debt having already demonstrated his/her savings ability over time. The requirement is generally for a minimum of 5% of the purchase price of the property.
The requirement is not necessarily a lenders policy. It is predominately a Lender Mortgage Insurers (LMI) policy. As most first home buyers enter the housing market with 3-10% in savings, the requirement for LMI is automatic, and hence a borrower has to conform to the mortgage insurers guidelines. The principle guidelines of LMI is to verify a borrowers overall affordability, and verify a borrower’s genuine savings pattern.
There are many different patterns of savings which could class as genuine savings, and some patterns which do not. Learning these distinctions is paramount in understanding genuine savings policy. The best and most common pattern recognizable is a gradual savings increase in one’s savings account over a 3 month period or more. Refer to below table as an example:
Another genuine savings pattern is having the savings sit in your transaction account or term deposit account etc for a 3 month period or more whilst maintaining a consistent and steady balance over this time.
Yet genuine savings is not restricted to cash savings in a bank account. It can also include the following:
- Having stocks or shares to the value of your deposit requirement amount for over 3 months
- Equity in another property
- Managed funds
Non Genuine Savings
When a client cannot verify his/her savings pattern over a 3 month period or more, yet he/she has savings, a lender could treat this under a non genuine savings policy. Although this policy is not widely known as being available, it can be found within several major lending institutions and is popular.
A typical non genuine savings client is someone who has the deposit for a home ( generally 5-10% or more), but does not have that money in a bank account for 3 consecutive months or more. This person also does not have equity in a property, shares, or managed funds. This client is also the type who could go and deposit the money into his/her bank account a day before applying for a loan as he/she could have the money in cash at home or recently sold an asset like a car which is the most common example.
In addition, a typical non genuine savings applicant is someone who raised or received their deposit by way of a gift or inheritance from a family member. This is especially such, with parents taking on the responsibility of taking their children’s savings and parking this money under their own name/s to guarantee the savings of their children. Yet, when the person is ready to enter the property market for the first time, his/her entire saving is held in the name of the parents. This is particularly common amongst people from Non English speaking backgrounds. Lenders and mortgage insurers have recognized this, and have a created a non genuine savings policy and product to suite these types of clients.