Can My Parents Take Out a Loan For My House Deposit?
Author: Pete Mugleston
CeMAP Mortgage Advisor, MD
Can my parents take out a loan for my house deposit?
Yes, they can, but lenders do not tend to encourage taking out a loan to pay a mortgage deposit. If you and your parents want to go down this route, there are some things you need to consider.
The cost of personal loans is high
Personal loans are available for amounts up to £25,000, but remember that this is not cheap money.
If your parents were to borrow, say, £10,000 with an APR interest rate of 9.9% and repay it over 3 years, the repayments would be around £320 a month, and they would have to pay back £11,528, costing them £1,528 in interest.
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Where did the money come from?
If your parents gift you the deposit (or part of it), or even if they hand you the money beforehand, the banks and other mortgage providers will want to know where the money came from.
Your financial records will include savings, and a sudden cash infusion may ring alarm bells with the lender. This is because financial institutions in the UK are subject to strict anti-money laundering (AML) regulations.
You will have to explain where it came from, and most mortgage providers are notoriously reluctant to accept deposit money that has been borrowed.
This is not to say there aren’t some lenders who will consider a cash contribution from your parents, even if it is from a personal loan, but there may not be many.
Other options are available
As stated above, a personal loan is expensive. But all is not lost because some other options are available to you.
If your parents own their home, then they could use equity release to help you with your deposit. This is a much more acceptable way in the eyes of lenders.
The advantage is that your parents don’t have to make any repayments if they choose not to (but they always have that option).
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Pete Mugleston
CeMAP Mortgage Advisor, MD
Pete, a CeMAP-qualified mortgage advisor and an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete successfully went the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained and his love of helping people reach their goals led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!
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