Buying a home is one of the biggest financial steps most of us will ever take. But saving for a mortgage deposit can be a challenge—especially with rising house prices and the cost of living making it harder to put money aside. So, what if you’re struggling to build up your deposit? Could getting a loan for your mortgage deposit be the answer?
Here’s a straightforward guide to help you understand what’s involved, the pros and cons, and what lenders in the UK really think about borrowed deposits.
Can You Use a Loan for a Mortgage Deposit?
In simple terms, it’s possible—but not easy. Most UK mortgage lenders want to see that your deposit has come from your own savings or a gift, not borrowed money.
Why? Because if you’ve taken out a loan to cover the deposit, that’s another monthly repayment added to your budget. Lenders look at affordability carefully, and extra borrowing could tip the balance and make them see you as too much of a risk.
What Counts as a Loan?
A loan doesn’t just mean a personal loan from your bank. It could include:
- Money borrowed from family or friends (if it’s expected to be repaid)
- Credit card debt
- Payday loans or other short-term lending
- Even a loan secured against another asset
If you’re planning to borrow any money to help with the deposit—even informally—it’s important to be upfront with your mortgage adviser or broker.
What If It’s a Gift, Not a Loan?
This is where things can change. If your parents, for example, are giving you money as a gift towards your deposit, and they don’t expect it back, most lenders will accept that. You’ll usually need a formal letter confirming it’s a gift and not a loan.
This is often known as a gifted deposit and is very common among first-time buyers in the UK.
Are There Any Mortgage Products That Allow Borrowed Deposits?
Some specialist lenders may be more flexible, especially if you’ve got a good income and low other debts. But high street banks are usually strict on this point.
You might find options through:
- Guarantor mortgages
- Family deposit mortgages (where a family member uses their savings or home equity to help)
- Joint borrower sole proprietor mortgages
These don’t involve a cash deposit in the same way, but they can be alternatives if saving up is proving difficult.
The Risks of Using a Loan for a Deposit
Here are a few things to think about before you go down this road:
- Affordability checks: Lenders will include your loan repayments when assessing if you can afford the mortgage.
- Higher interest rates: If your credit score takes a hit from the loan, you could be offered a higher mortgage rate.
- Lower chances of approval: Even if you pass the affordability check, many lenders may still reject your application.
- Debt on debt: Using borrowed money to take on more borrowing can put you in a financially vulnerable position.
What Are the Alternatives?
If you can’t raise the full deposit from savings, consider:
- Shared ownership schemes
- Help to Buy ISA or Lifetime ISA savings
- Buying with a friend or partner
- Looking further afield for cheaper properties
- Delaying your purchase to save more over time
You could also speak to a mortgage broker, who can look at your full situation and advise on what’s realistic.
FAQs
Yes, it’s legal—but that doesn’t mean lenders will accept it. While you’re allowed to borrow money, most mortgage providers prefer deposits that come from savings or gifts. They may reject your application if they know the deposit is borrowed.
Absolutely. UK lenders carry out source-of-funds checks to confirm where your deposit came from. You’ll usually need to provide bank statements or other documents to prove the money hasn’t come from a loan or other borrowed source.
100% mortgages are very rare but not impossible. Some lenders offer them under special schemes, such as family-backed mortgages. These options don’t require a cash deposit but may need family support through savings or equity.
Taking out a personal loan can temporarily lower your credit score due to the hard credit check and increased debt. This may reduce your chances of mortgage approval or lead to higher interest rates.
Some niche or specialist lenders may consider it on a case-by-case basis. They’ll assess your income, overall debt, and ability to repay both the loan and the mortgage. However, this route usually comes with stricter terms or higher rates.
In most cases, no. Deposits from credit cards are classed as borrowed money, and mortgage lenders generally don’t accept this. It also increases your debt-to-income ratio, which can harm your application.
It depends on the agreement. If your parents expect the money back, it’s a loan and must be declared to the lender. If it’s a gift with no repayment expected, you’ll need a gifted deposit letter to prove it.
The main risks include higher monthly payments, lower affordability, rejection from lenders, and the possibility of getting into financial difficulty. It also narrows your choice of mortgage products.
You’ll need to provide savings records, payslips, or bank statements showing how you built up the deposit. For gifted deposits, you’ll need a signed declaration from the giver confirming it’s not a loan.
Yes, there are alternatives like shared ownership, Lifetime ISAs, or family support through guarantor mortgages. These are often safer and more lender-friendly ways to get on the property ladder.
Continue Reading
Mortgage brokers first-time buyers London
How can first-time buyers get help with a mortgage from friends?
How far back do mortgage lenders look at credit history?
Self-employed mortgages London
Single brick construction mortgage
How much can I borrow for a mortgage?
Mortgage with a gifted deposit
Joint mortgage with bad credit