Where can I borrow money for a mortgage deposit?

Although lenders advise against borrowing money for your deposit, there’s no shortage of ways to obtain the funds needed for a deposit if you can’t scrape together enough savings. These include: Personal loan: You can take out a loan through your bank or building society for any reason. However, this will show up on your credit file, which a mortgage lender will check before deciding whether to grant you a mortgage and, if so, on what terms. Director’s loan: Many self-employed people operate through personal service companies (also known as limited companies) and pay themselves by taking small salaries from the business and the rest in dividends. In a good year, they may choose to leave the money in the business rather than take it all out and lose it through taxation. In this case, one option is for the company to lend money to the director, including a loan for a mortgage deposit, which would then be repaid from future dividends. Borrowing from family or friends: This option is far from straightforward. Again, your mortgage lender will want to know the source of the deposit. The problem with this type of loan is it’s not as strictly arranged as one organised through a financial company. Borrowing from family or friends can result in fractured relationships if either party becomes unhappy with the arrangement. Maxing out credit cards is an alternative to personal loans, although it’s not without its shortfalls. The chances are that borrowing in this way will attract a high rate of interest, which could see your level of debt rocket in the long run, placing your mortgage repayments in jeopardy. It’s not ideal, but it may be an option if you are confident it will only be a short-term arrangement.

How can I save for a mortgage deposit?

There’s no shortage of ways to save money for a mortgage deposit. Indeed, the list is probably endless. However, here are some of the easier ways to reach your goal: Put aside a fixed amount every month, perhaps via a standing order. Take care not to overstretch, as you don’t want your good intentions to be offset by overdraft charges. Cut out something you can do without. Even if it seems small, the cash can build up over time. Giving up smoking, takeaways, nights at the pub, or daily trips to a coffee shop can all make an impact. Take a second job, even if it’s just one or two shifts a week at a bar or a gym. Flat share with a friend who’s also looking to save. Alternatively, search for flat-shares online via sites such as SpareRoom. Sell items you no longer need via auction sites. Old vinyl, books and clothes are easy to part with. You could also eject things you won’t need once you move. Reassess your financial options: Take time to look at whether you have the best savings account, current account, credit card, and switch if not. Likewise, don’t automatically renew your car and home contents insurance policies – shop around for better deals. If you’re eligible, make use of the various government schemes for prospective homeowners, such as a Lifetime ISA or a Help to Buy ISA. If you own your own home, consider taking in a lodger to help pay the bills.

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

Yes, but your parents would then be accountable to their lender and would need to ensure they repay their loan in full and on time. If money is tight, it could be a risky option. Both you and your parents need to think seriously about how such a loan could damage your financial record and personal relationship if there were a hitch further down the line.

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Can you get a loan for a mortgage deposit?

Can I get a loan to buy a house?

Written by Tom Martin, Content editor

Edited by Dan Moore, Finance Writer, March 1, 2022

It is possible to use a loan as a mortgage deposit, but many banks and building societies are cautious about lending to people with other debts. You’ll have fewer lenders willing to accept you as a customer and may be offered comparatively poor deals or even be rejected for a mortgage altogether. While saving a deposit is the best option, it’s not always possible. So how do you secure a mortgage loan deposit? Find out with our complete guide…

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Can you get a loan for a mortgage deposit?

Research by mortgage lender Halifax found that the average first-time mortgage deposit in 2021 was almost £53,935.

Given it could take several years to scrape together this amount of cash, it’s tempting to take out a loan for a mortgage deposit. But putting yourself in debt to secure even more debt isn’t ideal. And mortgage lenders will be put off by high levels of borrowing.

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Can you use a personal loan for a house deposit?

You may find lenders prepared to offer a personal loan that can act as a deposit for a house loan. You may also find a lender prepared to provide a mortgage on that basis. The problem is that they’re unlikely to offer you the best terms and interest rates because you’re effectively taking out a 100% mortgage, with the entire cost of the house being covered by one form of loan or another. That makes you high risk.

What else affects eligibility if I’m using a loan for a mortgage deposit?

Lenders will scrutinize credit reports to establish how much risk you represent. They will pay particular interest to any missed repayments, payday loan applications and other indications that you may struggle to repay the overall debt. They will also look at any recent credit applications.

James Jones, head of consumer affairs at credit agency Experian, explains: “Most mortgage lenders take a dim view of applicants raising a deposit using other forms of credit. We certainly advise people to avoid applying for credit in the run-up to a mortgage application.”

Using loans is frowned upon by mortgage lenders. You will need to tell them where your deposit is coming from; even if you don’t, they will discover the loan when reviewing your credit reports.

It's best to think creatively about how to get a deposit for a house rather than using loans.

How much deposit do I need to buy a house?

The loan-to-value ratio (LTV) reflects the balance between the amount borrowed and your new home’s value. A low loan-to-value ratio is best because you are perceived as a low-risk borrower, meaning lenders compete for your business by offering attractive rates.

Conversely, those with lower deposits and a higher LTV are deemed to be at greater risk of defaulting on repayments.

Ideally, therefore, you want to put down as much as possible. But how much is enough?

First-time buyers usually require at least a 10% deposit, although some lenders offer mortgages with 5% deposits
Joint-mortgage applicants – who may be couples, friends or business partners – can usually get a mortgage worth up to four times their combined salaries. They typically need to put down at least a 20% deposit, although some lenders will accept 10%.

Alternatives options to a mortgage deposit loan

Other options worth contemplating include:

Gifts from family

If a family member gives you the money for your deposit, you need to ensure you can prove that it is a gift, not a loan.

Also, be aware that under inheritance tax, the person giving you the cash must survive for seven years after making the gift; otherwise, you may have to pay inheritance tax on the money.

Shared ownership

A shared ownership arrangement is where you opt to buy a proportion of a property – 25% or more – with a relatively small deposit. For example, 5% of the property value. You also get a favourable interest rate.

Under this scheme, you pay rent on the remainder of the property, at a below-market rate, to the housing association that co-owns the property. The idea is that you eventually buy the housing association’s share.

Help to Buy scheme

With the Help to Buy scheme, the government gives first-time buyers up to 20% of their deposit (40% in London), providing that they put up 5% themselves. Homebuyers must contribute 80% of the home’s price – for example, with a 5% deposit and a 75% mortgage. (In London, homebuyers must contribute at least 60% of the home’s value.)

This scheme is available to first-time buyers with a household income of less than £80,000 a year (£90,000 in London).

Guarantor mortgage

A guarantor mortgage requires a friend or relative to commit to step in and cover your mortgage if you fail to cover repayments.

It’s a big ask and entails a huge commitment from someone with no direct interest in the property. Still, it may be an option, providing both parties are willing to take on the risk.

Loan for a mortgage deposit FAQs

Although lenders advise against borrowing money for your deposit, there’s no shortage of ways to obtain the funds needed for a deposit if you can’t scrape together enough savings. These include:

Personal loan: You can take out a loan through your bank or building society for any reason. However, this will show up on your credit file, which a mortgage lender will check before deciding whether to grant you a mortgage and, if so, on what terms.
Director’s loan: Many self-employed people operate through personal service companies (also known as limited companies) and pay themselves by taking small salaries from the business and the rest in dividends. In a good year, they may choose to leave the money in the business rather than take it all out and lose it through taxation. In this case, one option is for the company to lend money to the director, including a loan for a mortgage deposit, which would then be repaid from future dividends.
Borrowing from family or friends: This option is far from straightforward. Again, your mortgage lender will want to know the source of the deposit. The problem with this type of loan is it’s not as strictly arranged as one organised through a financial company. Borrowing from family or friends can result in fractured relationships if either party becomes unhappy with the arrangement.
Maxing out credit cards is an alternative to personal loans, although it’s not without its shortfalls. The chances are that borrowing in this way will attract a high rate of interest, which could see your level of debt rocket in the long run, placing your mortgage repayments in jeopardy. It’s not ideal, but it may be an option if you are confident it will only be a short-term arrangement.

There’s no shortage of ways to save money for a mortgage deposit. Indeed, the list is probably endless. However, here are some of the easier ways to reach your goal:

Put aside a fixed amount every month, perhaps via a standing order. Take care not to overstretch, as you don’t want your good intentions to be offset by overdraft charges.
Cut out something you can do without. Even if it seems small, the cash can build up over time. Giving up smoking, takeaways, nights at the pub, or daily trips to a coffee shop can all make an impact.
Take a second job, even if it’s just one or two shifts a week at a bar or a gym.
Flat share with a friend who’s also looking to save. Alternatively, search for flat-shares online via sites such as SpareRoom.
Sell items you no longer need via auction sites. Old vinyl, books and clothes are easy to part with. You could also eject things you won’t need once you move.
Reassess your financial options: Take time to look at whether you have the best savings account, current account, credit card, and switch if not. Likewise, don’t automatically renew your car and home contents insurance policies – shop around for better deals.
If you’re eligible, make use of the various government schemes for prospective homeowners, such as a Lifetime ISA or a Help to Buy ISA.
If you own your own home, consider taking in a lodger to help pay the bills.

Guarantor mortgages offer parents or other loved ones a way to help you buy a house. This type of arrangement can enable you to take out a 100% mortgage, as your guarantor’s home is used as collateral instead of a deposit. However, if you fail to make your monthly mortgage repayments, the mortgage lender could repossess the guarantor’s home. This is not a risk to be undertaken lightly, given what’s at stake.