Getting a Loan For Your Mortgage Deposit
We have helped over 820 customers get the right advice on securing a loan for their deposit. It all comes down to your monthly affordability for both mortgage and loan repayments. With six lenders who will consider it and 15 advisors in our expert team to support you, there is no time like the present. We are confident we can get your mortgage approved and find you the best deal. If we cannot and another broker does, we will give you £100.*
Check Your Affordability with Expert Guidance
A quick call can give you mortgage options and the certainty you need to move forward with confidence.
Author: Pete Mugleston
CeMAP Mortgage Advisor, MD
Quick Summary
There are a few ways people look to finance their deposit, the most common are:
- Using an unsecured personal loan from a bank (the most common reason people visit this page! its tricky and only about 6 lenders can consider it, but something we do a lot of).
- Using a loan from someone else (often a family member – this is often flat out rejected by most lenders, where others may still consider but would calculate the appropriate monthly payment for affordability, as if it were a bank loan)
- Borrowing from another property you own (such as a Buy-to-let or second home, is straightforward and very common practice that most lenders are happy with).
In short – using a loan for your deposit can raise red flags with lenders because it increases your overall risk, so many don’t allow it. Those that do are more flexible but will still want to ensure the monthly repayments are factored into the affordability checks, which could reduce how much you’re able to borrow. But, if you can afford both – why not?
Get advice from one of our experts to see how much you can borrow with the loan, and which rates you qualify for.
Yes! There are about 6 lenders willing to lend the mortgage, if you are using a loan for your mortgage deposit, even if all of your deposit is coming from a loan and you have no cash to put in.
Most lenders are too risk-averse; they don’t like the added risk of new finance to manage as well as a new mortgage, and on top, as you’re not putting in any savings (which is often seen as “hurt money”), you have less to lose if the property is repossessed, so are therefore more likely statistically to not pay the mortgage back and walk away.
Here are some of the key criteria lenders will look at before lending to you:
- Lenders prefer savings or gifted deposits
- Borrowed deposits are often rejected unless they are clearly manageable
- Borrowing a loan can impact affordability calculations
- Borrowing on a mortgage on another property is fine and commonly accepted by most lenders – this is secured lending, either through a remortgage or second mortgage, and something we do all the time.
The following are some of the key questions lenders will look at:
- Are you planning to borrow all or part of your deposit?
- Is the loan secured or unsecured?
- What are the monthly repayments (which can affect your affordability assessment)?
Most experts would advise that you do not apply for a mortgage if you’re planning to use a credit card or overdraft to pay the mortgage deposit. If you’re unable to save for a deposit, using a high-interest form of credit instead is very risky and doesn’t reflect well on your creditworthiness.
Still, don’t let this put you off the idea of getting a mortgage altogether. A credit card or overdraft might seem like your only option, but a quick chat with an expert might help you identify another route, so it’s worth speaking to a broker.
If you have your own limited company, you may have needed to put a sum of your own money into getting the business up and running (i.e. make a director’s loan). Many business owners do this at the expense of saving for a mortgage deposit.
The good news is that once your limited company has enough retained profits, you can take that money back out (i.e. repay the director’s loan). Many lenders will allow you to use this money towards your mortgage deposit.
Director’s loans work both ways: you can put money into your business and later withdraw it, or you can borrow money from the business and later repay it. However, you can only use a director’s loan as a mortgage deposit if it is being repaid, not borrowed. You can find more useful tips in our guide to mortgages for company directors.
Speak To an Expert on Mortgage Deposits
Receive a Callback From a Qualified Mortgage Advisor
-
Find Out How Much Deposit You Might Need To Get a Mortgage
-
Receive Personalised Advice
-
Find Out What Rates You Could Get
How to get a mortgage using a loan for your deposit
Here’s a three-step process for getting mortgage approval with a borrowed deposit:
1. Speak to an expert
Before you borrow any money, you should seek expert advice. You’ll want to discuss whether this is the best way for you to get a mortgage, which type of loan you need, how much you should borrow, and what your other options are. Speak to a broker for personal, impartial advice. If you’d like us to connect you with one, get in touch.
2. Apply for the loan
If an expert agrees that this is your best homeownership route, you can proceed with your loan application. The specifics of the application process will depend on whether you choose an unsecured personal loan or an equity loan.
3. Find the right mortgage lender
Remember that most lenders will not accept borrowed deposits, so you’ll only have a few options to choose from. Your broker can identify the best rate available to you and recommend the lender that’s the best fit.
We're so confident in our service, we guarantee it.
We know it's important for you to have complete confidence in our service, and trust that you're getting the best chance of mortgage approval at the best available rate. We guarantee to get your mortgage approved where others can't - or we'll give you £100*
Lenders and eligibility criteria
Generation Home, Barclays, Kensington Mortgages, Tipton Building Society, and Stafford Railway Building Society can potentially consider deposits partially sourced from privately funded equity loan providers.
Santander, Norton Home Loans, Saffron, and Together will all consider deposits sourced from personal loans. You’ll need to provide details of the lender, loan amount and terms, and details of security on the loan. Besides that, you’ll need to meet the lender’s other eligibility criteria covering age, income, employment status and more.
Unfortunately, not all mortgage applications with a borrowed deposit will be successful. Your application will be reviewed in detail, so we’d advise you to work with a broker to ensure it stands up to scrutiny.
Related Articles
Is borrowing from family an option?
Gifted deposits from family members are common for first-time buyers and are accepted by almost all lenders. Unfortunately, loaned deposits from family members are not treated the same way and approval will depend on the agreed terms of the loan.
If your family members agree that the loan is only due for repayment when you sell your home in the future, it’s likely you can get a mortgage. As long as the loan is the second charge (i.e. the mortgage must be repaid before the loan is repaid) and there are no monthly repayments involved, around 15 lenders will consider your application.
Your family members may not be in a position to lend money on these terms. If they would prefer you to make monthly repayments, the loan will be considered in the same way as any other unsecured personal loan, i.e. a handful of lenders might accept it.
Alternatives
Before taking out a loan, it’s worth considering your other options.
The government currently offers three initiatives designed to help buyers who are struggling to save a large deposit:
- The mortgage guarantee scheme makes it less risky for lenders to offer 95% mortgages. Many people can buy a home with only a 5% deposit. Read more in our guide to 95% mortgages.
- The Help to Buy scheme provides an equity loan to first-time buyers who buy a newly built property from an approved homebuilder. This allows them to buy with only a 5% deposit. Read more in our guide to Help to Buy.
- The Shared Ownership scheme allows people who can’t afford to buy a home to buy only a portion of it and rent the remaining portion from a housing association. Read more in our guide to Shared Ownership.
Other alternatives include using equity from your own property or your pension lump sum as a deposit if you’re an older borrower approaching retirement.
Related Articles
Get matched with a broker to help with your deposit choices
Since this is an unconventional route to homeownership, you’ll find that many brokers haven’t handled this type of application and won’t be able to give you the best advice. You’ll need to find someone with the right experience.
We connect homebuyers with specialists who have experience in cases like theirs. If you’d like to speak to a broker who has experience with borrowed deposits, we can connect you with one. Just call us on 0330 818 7026 or make an enquiry online.
Ask Us A Question
Ask us a question and we'll get the best expert to help.
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!
Superb response and knowledgeable advisor
Steve, the financial advisor, contacted me within the hour and was very friendly, knowledgeable and professional. He seemed to relish my non standard requirement, diligently kept me updated during the day and we struck up a great relationship. Very impressed.
Peter Costello
Knowledgeable and Supportive
The team were fantastic and really knowledgeable and supportive. They answered all questions promptly and came back to me with regular updates. I have already recommended them and will use them again.
Dorothy
Prompt and Professional
A very prompt and professional service. The advise and guidance has been so valuable as a first time buyer.
Ayesha