Genuine savings is a term used by the lending industry when defining whether the funds to be used as a deposit by a proposed borrower (for a property purchase) have been genuinely saved over time.
Non genuine savings could be defined as any funds available to assist a proposed borrower with a purchase of a property that are not deemed to be genuine savings. Makes sense really but the tricky part is many lenders and the mortgage insurers disagree on what is and what isn't genuine savings!
To have your loan approved the majority of lenders require that you prove you have genuine savings if you are borrowing more than 80% of the value of a property or 85% or more in some cases. You will generally need to prove you have at least 5% of the proposed purchase price saved. Genuine savings is a way for the lender to verify the character of the proposed borrower. A borrower who has committed to saving is a much better bet than someone who hasn’t at all.
Every lender has different rules regarding savings requirements so please call us to discuss your situation in detail. We are experts in working out how to apply each lenders policy to maximise your options and provide you with the best loan possible from our panel of lenders.
Issues around genuine savings are one the most common reasons high loan to value ratio (LVR) loans end up being declined.
As mentioned every lender views genuine savings slightly differently and there are some grey areas when it comes to official policy. As a general rule if you’re in doubt the lender is more likely to be conservative than not and it won’t be considered genuine savings. Keeping a paper trail is very important!
Genuine savings must be:
Property purchase price $500,000. Genuine savings required is therefore $25,000 (5% of $500,000).
This would be considered genuine savings with most lenders as they have held the required $25,000 (5%) for the last 6 months. Even though they haven’t added to it over this time from their own savings they have not spent it either. The gift does not affect their eligibility under the genuine savings policy; it would have to be disclosed as a gift though as the lender would require an explanation as to the source of the $25,000 deposit.
Property purchase price $500,000. Genuine savings required is therefore $25,000 (5% of $500,000).
This would not be considered sufficient genuine savings with most lenders as although they have shown a good regular savings pattern they have not shown the full 5% genuine savings required. They started with $40,000 then withdrew $23,000 leaving them with $17,000 in savings. They were adding $500 / fortnight to this amount over the 6 months but that was insufficient to make up the $25,000 required.
In this case they would have been far better to get the gift from family to purchase the car so as to preserve their savings history.
Everyone's situation is different, and the lending policies around genuine savings are very fluid. We are starting to see some relaxation of the genuine savings policies for owner occupiers with some lenders now considering rent paid as proof of a borrower’s capacity to repay a loan which in some cases is then being used as an alternative to needing to prove genuine savings. Of course the borrower still needs access to funds for their deposit, but they can come from a gift or inheritance for example.