Some mortgage providers will accept deposits that are in the form of a personal loan that has been taken out to be used as a deposit, this will be factored into your affordability calculations as this is a monthly commitment as loans are repaid to the provider. If you choose this method there will be fewer lenders available to you. For it to be accepted as a deposit you may need to provide evidence of repayments having been made during this period.

The amount of money available from the personal loan is often capped and may be lower than the amount required for a deposit. You should also take into account that if you do choose to use a personal loan for your mortgage deposit, you will need to factor in the interest rate charged on the loan when working out how much you can afford each month.

Thinking of using a loan as a mortgage deposit?

Before taking out a personal loan, consider carefully how long it will take to pay back the loan and how much is left over at the end of each month after your loan repayments are taken. It’s important to be realistic about what you can afford so that your mortgage payments do not put too much strain on your finances.

It is always a good idea to get advice from a qualified professional before making any decisions about your finances. They can help you to assess the best option for your circumstances and advise on whether a personal loan is an appropriate way of financing your mortgage deposit.

Lenders don't tend to favour deposits that have come from a loan and this will be factored into your affordability assessment which won't be beneficial to you. You will also have less desirable rates available as mortgage lenders feel more comfortable accepting other types of house deposits. For example, a savings deposit is the most common as it shows you are responsible with your money.

If you are unable to save money but looking to move fast then you may be able to take out a loan for a mortgage deposit. You may only have high interest rates available to you if you use this method for a deposit, due to the risk of how responsible you are financially, to the lender.

However, personal loans can be used for a house deposit as there are lenders that will accept them. If you are unsure, speak to mortgage brokers to see if you would receive mortgage approval from a mortgage lender. Most mortgage lenders will accept the majority of mortgage deposits when customers are looking to borrow money for a property purchase.

Different types of mortgage deposits

There are alternatives to personal loans for deposits such as:

• Gifted deposit - A family member gives you the money for a deposit
• Savings - When you save the money for a deposit yourself

There are also alternative mortgages to help you get onto the property ladder such as:

• Guarantor mortgage - A close family member goes on the mortgage with you and takes an element of risk financially to guarantee the mortgage
• Shared ownership mortgage - When you own a percentage (share) of the property and the share of the property not bought by you will be owned by a housing association (in some cases it'll be a local authority or building developer) which you will pay rent for. A lower deposit is needed as you aren't purchasing the full market value of the property

In conclusion, it is possible to use a personal loan for your mortgage deposit in the UK. However, it is important to consider the implications of this decision before committing to any loan repayment plan and to seek advice from a qualified professional if you are unsure.

By following this guidance, you can make an informed decision about using a personal loan for your mortgage deposit in the UK.

Speak to one of our mortgage brokers today at 0151 662 0188 or email [email protected]