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Can my parents take out a loan for my house deposit?

Can my parents take out a loan for my house deposit?
Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: July 5, 2022

Can my parents take out a loan for my house deposit?

Yes they can, but taking out a loan to pay a mortgage deposit is not something lenders tend to encourage. 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 you have to 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.

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 input of cash 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 both expensive and comes with a whole set of problems you’ll need to overcome. But all is not lost, because there are some other options available to you.

1. Equity release
2. Remortgage
3. Second charge mortgage

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).

They could remortgage their home with a larger loan, which would allow them to release some of the equity that’s tied up in their property. This is quite a popular way to access funds.

A second charge mortgage is essentially a secured loan, and it might be a better alternative to remortgaging.

The main benefit is that the money is available at a much lower interest rate than a personal loan and can be carried over a longer period to reduce monthly repayments.

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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