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Can a loan be used as a house deposit?

Fiona Peake

By Fiona Peake

Yes, you can get a loan for a house deposit — but it’s not usually a good idea.

Most mortgage lenders tend to steer clear of borrowers who are borrowing the money for their deposit.

Mortgage lenders generally want your deposit to come from your own savings or as a gift from family or friends. If you take out a loan for the deposit, it means you’ll be paying off two debts at once: your loan and your mortgage. This can raise red flags for lenders, as it could affect affordability checks and make you look a higher risk.

In most cases, borrowing a deposit makes it more difficult to get your mortgage application approved — and you could even face rejection.

But don’t worry! There are still plenty of ways to save for a deposit without borrowing money. Let’s explore your options and the best way forward.

How do mortgage deposits work?

When you buy a home, you usually need to pay a chunk of money upfront. This is called your deposit.

Most lenders ask for a deposit worth at least 5% of the property’s price. So, if you’re buying a home for £200,000, you’ll need at least £10,000 saved up.

The bigger your deposit, the better your mortgage deal might be. That’s because lenders see you as less risky if you’ve put more of your own money in.

Can I use a personal loan for a house deposit? 

While it's technically possible to use a personal loan for a house deposit, mortgage lenders are unlikely to approve it in most cases.

Lenders prefer your deposit to come from your own money, as this shows you’ve been able to manage your finances and save over time.

If you borrow the deposit, you’ll be responsible for two repayments — your personal loan and the mortgage. This can make it harder for lenders to assess your affordability, which could affect your chances of approval.

Before you borrow, it’s worth checking with a mortgage broker or lender to see if they’d accept a personal loan as your deposit.

Can I receive a deposit for a mortgage from family or friends?

Yes, you can — and many people do.

If your deposit is a gift from family or friends, most lenders will be happy with that. They’ll usually ask the person giving you the money to sign a gifted deposit letter. This proves they don’t expect the money back and won’t have a claim on the property.

Borrowing the deposit as a loan from family or friends is trickier. Some lenders may still say no because it’s borrowed money you’d be expected to pay back. Others might ask for extra checks.

Can you get a 100% mortgage?

100% mortgages, also known as no deposit mortgages, don’t require an upfront payment. These may sound appealing, but they come with high risks, especially if house prices fall. Following the 2007-2008 financial crisis, most 100% mortgages disappeared from the market.

The only type of no deposit mortgage available today in the UK is a guarantor mortgage. This involves a trusted person (usually a family member) who agrees to pay your mortgage if you can’t.

Guarantor mortgages are designed to help people with bad credit or little savings get on the property ladder. But be aware: your guarantor must meet the lender’s eligibility criteria, such as having good credit and assets to secure the mortgage. Even with a guarantor, approval isn’t guaranteed. If both of you miss payments, you risk financial difficulties, damage to your credit score and potentially losing your home.

Because of these risks, guarantor mortgages aren’t common, but they can be a useful option in certain circumstances.

Why using a loan for a house deposit can be tricky

Here are a few reasons why getting a loan for a house deposit could cause problems:

  • Affordability checks: The lender will check all your monthly costs. If you’re paying off a loan, they might think you can’t afford the mortgage.
  • Higher debt levels: Having two big debts (a loan and a mortgage) can put pressure on your budget.
  • Possible mortgage rejection: Some lenders might turn you down completely if they find out your deposit is borrowed.

Will lenders check where my deposit comes from?

Yes, they will. Lenders are very careful about where deposit money comes from. They’ll want to see bank statements and proof that the money is either:

  • Saved up by you
  • A gift from family or friends
  • From the sale of another property

If they see the money has come from a loan, it could cause problems with your mortgage offer.

What are the alternatives to using a loan for a house deposit?

If you’re struggling to save, here are some other ways to boost your deposit:

  • Help to Buy schemes (if available): These government-backed schemes help first-time buyers get on the property ladder.
  • Shared ownership: You buy a share of the home and pay rent towards the rest.
  • Gifted deposit: Money from family or friends that doesn’t need paying back.
  • Lifetime ISA: A special savings account where the government adds a 25% bonus to help you save for your first home.

Can I use the equity in my house as a deposit?

If you already own a home, you may be able to use the equity from your property as a deposit for a new one.

Equity is the bit of your home that you own outright (the value of your home minus your mortgage). You could sell your home and use the profit as your deposit on your next one, or you might be able to borrow against your equity.

Always speak to a mortgage adviser before going ahead, as it can get complicated.

You might also consider a secured loan, where you borrow against your current property’s value. But be careful — it means putting your home at risk if you can’t keep up with repayments.

Can I use a bridging loan for a house deposit?

You might be able to — but only if you already own a property.

A bridging loan is a short-term, secured loan that helps you buy a new home before selling your current one. Some people use it to cover their deposit if their money is tied up in their property.

Bridging loans can be risky and expensive, with higher interest rates and fees. You’ll also need a clear repayment plan — usually the sale of your current home.

They can work in the right situation, but it’s important to get advice from a mortgage broker before going ahead.

Tips to save for a house deposit

If you’d rather not take on additional debt, here are some simple tips to help you grow your deposit:

  • Set a savings goal: Work out how much you need and break it down into manageable monthly targets.
  • Open a savings account or Lifetime ISA: These can offer better interest rates or bonuses to help boost your savings.
  • Cut back where you can: Small changes, like reducing takeaways or cancelling unused subscriptions, can add up over time.
  • Get cashback or rewards: Use cashback websites or reward cards when shopping to earn money back on purchases.

Is getting a loan for a house deposit a good idea?

Although it’s possible to do – it's rarely the best option.

Taking out a loan for a house deposit could make it harder to get a mortgage. It adds to your debt and can cause problems during lender checks.

If you’re unsure, it’s always a good idea to speak to a mortgage adviser. They can help you work out your best options — whether that’s saving up, getting help from family, or looking into government schemes.

Disclaimer: We make every effort to ensure content is correct when published. Information on this website doesn't constitute financial advice, and we aren't responsible for the content of any external sites.

Fiona Peake

Fiona Peake

Personal Finance Writer

Fiona is a personal finance writer with over 7 years’ experience writing for a broad range of industries before joining Ocean in 2021. She uses her wealth of experience to turn the overwhelming aspects of finance into articles that are easy to understand.

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