Can I use a loan or credit card for my deposit?

Most mortgage lenders will not accept a deposit that comes from a personal loan¹. That is the short answer, and it applies whether the money arrives as a lump sum from a loan, as a drawdown on a credit card, or as an overdraft you plan to clear later. Lenders ask where the deposit came from, and a loan is one of the answers they screen out.

The reason is affordability. A deposit funded by borrowing is not really a deposit: it is more debt, and the lender has to count the repayments alongside the mortgage. Santander states that a mortgage provider will want to take the loan repayments into account as part of the mortgage affordability assessment, meaning the amount offered is lower or the mortgage may be refused². Experian's guidance for self-employed borrowers puts it plainly: don't borrow money to get a deposit together for a property, because that is likely to affect a mortgage lender's decision³.

What lenders do accept is a deposit from your own savings, a gift from family, an inheritance, or the sale of your property if you are moving home⁴. Most lenders usually require a deposit of at least 5% to 10% of the property's value⁵, and you will usually need a deposit of at least 5% of the property's value to get a mortgage at all⁶.

Why most lenders will not accept a borrowed deposit

A mortgage is secured on the property, and the lender's first question is whether the borrower can keep up the payments if anything changes. A deposit built from savings shows the borrower has already demonstrated that discipline. A deposit built from a loan shows the opposite: a new monthly commitment starting at the same time as the mortgage.

That is why the exclusion is written into lending policy rather than left to discretion. The Nottingham's first-time buyer guidance states that most lenders won't accept a deposit that comes from a personal loan¹. Experian's self-employed lending guide goes further and tells borrowers not to borrow money to get a deposit together at all³.

There is a second reason, which is about the loan to value ratio. The deposit determines how much of the property the lender is exposed to. A 5% deposit means a 95% loan to value mortgage, which is already at the thin end of what lenders will take; you will usually need at least a 5% deposit to get a mortgage, meaning a 95% LTV mortgage, although it is possible to borrow more in some circumstances⁸. If the deposit itself is borrowed, the lender's cushion is thinner than the paperwork suggests.

A deposit that is too low is a common reason for a mortgage application to be rejected outright⁹. Borrowing to top up a deposit does not fix that: it moves the shortfall into the affordability calculation, where it does more damage.

How lenders check where your deposit comes from

Lenders do not take a deposit on trust. When you apply for a mortgage, lenders will check your credit history and need to see your income, monthly outgoings and savings to ensure you can afford the monthly repayments¹⁰. The application is then checked against the lender's lending criteria, and the lender arranges a valuation of the property before issuing a mortgage offer¹¹.

Underwriting covers three broad areas: checks on your credit history, making sure you can afford the property, and making sure you are eligible¹². A personal loan shows up in the first of those, and its repayments show up in the second.

Deposit evidence is a separate paper trail. If you have been given the deposit as a gift, you will need a letter from whoever gave you the money⁷. Lenders also ask for bank statements covering the period in which the deposit was built up, which is how a loan payment into your account becomes visible even if you never mention it.

Using a credit card for the deposit: the limits

A credit card is a borrowing facility, so paying a deposit with one runs into the same rule as a personal loan. There are also practical limits that make it a poor fit even before the lender's policy is considered.

Credit limits are set by the issuer and are usually far below a house deposit. Credit-builder cards, for example, tend to have a low and grow approach, whereby the initial credit limit is very low, say £100 to £200, but increases as you prove you can manage it responsibly¹³. A card like that cannot fund a deposit, and a card with a higher limit still leaves the balance owing.

There is also the question of what the card is being used for. Paying for foreign currency by credit card attracts a cash advance fee, a higher APR and no interest-free period even if the bill is repaid in full and on time¹³. Cash-like transactions are treated differently from purchases, and a deposit paid by card may fall into that category depending on how the payment is processed.

If a fee is added to the mortgage balance instead of paid up front, you can add it to the mortgage balance, though doing so will mean you pay interest on the fee, costing you far more overall¹⁴. That applies to arrangement fees and similar charges, and it is the same logic that makes a borrowed deposit expensive: the cost is spread over the mortgage term.

Borrowed deposits and your affordability check

The affordability check is where a borrowed deposit does its real damage. Lenders assess regular commitments, pay type, self employment, deposit, age and borrowing beyond retirement date, and lender criteria; all potential borrowing is subject to affordability checks and credit status¹⁵.

A loan taken out to fund a deposit is a regular commitment. Santander's guidance for people helping a loved one states that a mortgage provider will want to take the loan repayments into account as part of the mortgage affordability assessment, meaning the amount offered is lower or the mortgage may be refused². The same principle applies whether the loan is yours or someone else's.

Some lenders publish which deposit sources they will accept. Accord Mortgages, for example, lists acceptable deposits as Consumer Buy To Let, savings, release of equity, a deposit incentive scheme for non-new build properties, and a gifted deposit from a family member¹⁶. A personal loan is not on that list.

Even where a lender is willing to look at a case, the numbers have to work. No-deposit, 1% and 2% deposit mortgages are available to first-time buyers who meet the affordability checks¹⁷, which shows that the constraint is the check, not the deposit percentage alone. A borrower carrying a loan will struggle to pass the same check that a borrower with savings passes easily.

Alternatives to borrowing for a deposit

The alternatives fall into two groups: sources of money that are not debt, and mortgage structures that reduce or remove the deposit requirement.

On the first, a gifted deposit is the most common route. A gifted deposit is money given to a homebuyer to help them buy a property¹⁸, and it is not repaid. Gifts usually come from close family members, including parents, step-parents, grandparents, siblings and in-laws¹⁹. The lender will want a letter from whoever gave the money⁷, and there is a separate page on what evidence you need for a gifted deposit.

On the second, there are schemes and products that change the deposit arithmetic rather than the deposit source. A guarantor mortgage involves a family member offering their home or savings as security against your mortgage, and agreeing to cover the mortgage payments if you default²⁰. Shared ownership and shared equity schemes reduce the share you buy outright, and a lender may expect you to provide a modest deposit in order to obtain a shared equity mortgage²¹. There is more on these in first-time buyer schemes and shared ownership in England.

A small number of products are advertised with no deposit at all. One lender advertises a 0% deposit mortgage²², and Co-Ownership in Northern Ireland notes that some lenders offer mortgages that don't require a deposit²³. These are exceptions rather than the rule, and they still require the borrower to pass an affordability check.

What can go wrong and where to get help

The first risk is the application itself. A deposit that is too low is a standard reason for rejection⁹, and a loan that reduces affordability can turn a workable application into a refusal². A refusal stays on the record and can affect the next application.

The second risk is the loan itself. If a consolidation loan is secured against your home, your property will be at risk of repossession if you can't keep up your payments, and you may pay more overall over a longer period, face extra charges for setting up and repaying the loan, and find it difficult to renegotiate with a single lender if you get into difficulties²⁴. That is the shape of the risk a borrowed deposit creates: the debt outlives the purchase.

The third risk is timing. If you enter certain arrangements without your lender's permission, you could be breaking the terms of your mortgage agreement²⁵. Taking on new credit between offer and completion falls into that territory, and the lender should be told before anything is signed.

If a mortgage is already in difficulty, help exists. If you're having problems with your mortgage you could get help from your lender if they've signed up to the Mortgage Charter²⁷. Free, impartial guidance is available from MoneyHelper, and debt advice charities such as StepChange can set out the options where borrowing has become unmanageable. There is more in debt: a complete guide to help, solutions and your rights.