Can You Get a Loan for a House Deposit

Getting a loan to cover a house deposit is technically possible in the UK, but it is rarely straightforward and is generally discouraged by most mortgage lenders. Mortgage providers want to ensure that borrowers can comfortably afford both the loan repayments and the mortgage, and taking out debt to fund a deposit often raises concerns about affordability and financial stability.

However, there are situations where alternative forms of financial help may be used, and certain lenders might consider a deposit that comes from a personal loan or family source, provided specific criteria are met.

What is a house deposit and why does it matter?

A house deposit is the lump sum of money paid upfront when buying a property, typically between 5% and 20% of the purchase price. The deposit demonstrates your financial commitment and lowers the amount you need to borrow. The larger your deposit, the better your chance of securing a mortgage with favourable interest rates and terms.

Mortgage lenders view the deposit as a key factor in reducing their risk. If your deposit is borrowed rather than saved, it undermines the lender’s security because it increases your total monthly debt commitments and reduces your equity in the home from the outset.

Can you use a personal loan as a deposit?

Most high street mortgage lenders will not accept a personal loan as a source for your deposit. Mortgage rules require lenders to assess your debt-to-income ratio, and adding loan repayments to your financial commitments can cause your mortgage application to be rejected on affordability grounds.

Even if a lender does consider the application, they will ask for full details of the loan, including the amount borrowed, monthly repayments, term and lender. These figures will be factored into their affordability checks and could significantly reduce the amount you are eligible to borrow for the mortgage itself.

Some specialist lenders or private banks may allow personal loans to be used as deposits in certain situations, but these lenders often come with higher interest rates, stricter terms or require a guarantor.

What about borrowing from family or friends?

Borrowing money from family or friends is more commonly accepted than taking out a commercial loan. Many mortgage lenders will allow a gifted deposit, where a relative gives you money to use towards your house purchase. However, if the money is a loan rather than a gift, the lender must be told, and they will consider the repayments as part of your financial commitments.

To use a gifted deposit, the person providing the money must confirm in writing that the funds are a gift, not a loan, and that they will not have any legal claim to the property. Some lenders may also request bank statements or identity documents from the gift provider to comply with anti-money laundering regulations.

If the deposit is a family loan, this must be declared to the lender, and a legal agreement should be drawn up confirming the terms. Some lenders will still refuse the mortgage if the deposit is not an outright gift.

Are there other ways to get help with a deposit?

There are government schemes designed to help people buy property without needing a large deposit. Shared Ownership, First Homes and Deposit Unlock schemes are available to eligible buyers and can significantly reduce the amount needed upfront. These programmes are particularly useful for first-time buyers or key workers who are struggling to save a deposit.

You may also be able to access Lifetime ISAs or Help to Buy ISAs if you have savings in those accounts, which offer a government bonus of 25% on your deposit savings, up to specific limits.

A guarantor mortgage is another alternative where a family member agrees to guarantee part of your loan or put forward their own property as security. These arrangements can sometimes allow buyers to secure a mortgage without a traditional cash deposit, but they do come with serious responsibilities for the guarantor.

What are the risks of using a loan for a deposit?

Using a loan to fund your deposit means you are entering into a mortgage with additional debt already in place. This increases your risk of default and makes it harder to meet monthly payments, especially if interest rates rise or your financial situation changes.

It can also reduce your borrowing capacity. Lenders will factor the loan repayments into your overall affordability calculation, which may limit how much they are willing to lend you for the mortgage. In some cases, this may prevent you from buying the property you want altogether.

If your loan is not disclosed and the lender finds out later, it could be treated as mortgage fraud. Always be transparent with your lender and solicitor to avoid legal and financial consequences.

Conclusion

While you can technically get a loan to fund a house deposit, doing so is rarely advisable and may cause your mortgage application to be declined. Most lenders prefer deposits to come from savings or gifted funds. If you are struggling to save enough, it may be worth exploring government schemes, saving through an ISA or seeking advice from a mortgage broker to understand what options are available for your specific situation.