Can a loan be used for mortgage deposit/property purchase?

Holly66

Hi folks,

I have read some articles online about increasing deposit to get better rates/reducing mortgage outlay by substituting some of the borrowing with a personal loan (as there are many good deals at the minute). However, when I looked, many lenders websites say loans cannot be used for mortgage/deposits. So my questions are:

Does anyone know of lenders who do not preclude you from using loan funds for property purchase?

Some say 'can't be used for a mortgage deposit'. However, can the funds be used for an outright purchase of property?

Thanks!

CKhalvashi

You will need to declare it to the bank anyway, so the best thing to do is ask.

I take it you're not trying to fraudulently get a loan by misdeclaring the reason?

Holly66

No problem declaring it, and I'm certainly not trying to commit fraud! Just asking if anyone knows any lender (ie personal loan lender, rather than the bank/mortgage lender) who doesnt mind a loan being used for property purchase? If yes, I'd then me checking with bank if they'd accept a loan as part deposit before doing anything. Just trying to avoid having to identify/ring/trawl through the website of every loan provider - especially as you seem to have to start an online application before you can see what reasons they'll accept in some cases. Just trying to explore options.

JPD86

I've been advised previously that Santander accept a loan as a deposit source.

There are also some banks which do not ask the purpose of a loan, First Direct being one.

csgohan4

applying for a loan for a mortgage is frowned upon and results in a hard search on your credit file. It will also affect your affordability of a mortgage and ultimately mean you will not be able to lend as much as someone with your salary without that loan.


The interest rate on the loan may also be prohibitive and not financially good. If you don't have a deposit to buy a house, perhaps it's not the right time to buy a house. You could consider the help to buy schemes around if you have 5% deposit.


Have tried using the mortgage calculators to see if you can afford a mortgage and loan repayments??

Mirno

There's no reason (legally speaking) you can't get an unsecured loan to buy a house, rather than a mortgage if that's what you're asking.
If you had £90k in savings and wanted to buy a £100k house you could get a £10k loan to do that. In fact some banks would be reluctant to set up a mortgage on such a small sum as it wouldn't be worth the administrative effort!

The reason banks won't let you use a loan as a deposit is that it leaves you with no financial investment in the property. If you stand to lose your own money, they reason, you will be more wary of treating the debt to them with the seriousness it deserves.

If you go into your local branch and explain the situation then the manager may be able to help. It's an usual situation though, that someone would have saved all but £5000 to £10000 of a property's price and be in need of a loan for that last little bit. I doubt you'd find anyone specialising in that field. A chat with an IFA would likely be your second port of call...

Mirno

Holly66

Thanks folks. To clarify, I'm looking to buy a second property in the Republic of Ireland near to my elderly parents. I already have a residential mortgage in Northern Ireland. Because I'm now non-resident and not a first time buyer, I am only eligible for a buy-to-let mortgage in ROI. However, lenders there are not keen to finance 'investment' properties (even though I want it as a second home). Despite having saved 25% of the purchase price I'd like to spend and having excellent credit score and good affordability, the other criteria are prohibitive. For example, some ask for 50% deposit, others that you earn an annual salary over a certain amount (ie higher than my salary).

I was interested in either making my deposit up to 50% with a loan or even making up the full purchase price across a couple of UK loans, particularly as the euro exchange is very good at the min. I want a small property - so basically I have shortfall of c £40 stg. Having looked into ROI mortgages, I think it might be more likely I could secure a UK loan/s.

Southend1

Can you remortgage your home to raise the funds for the second property?

Holly66

Unfortunately my LTV is wouldn't allow me to release much.

jonesMUFCforever

There is a reason why Eire was/is one of the ''PIGS'' they lent to borrowers such as yourself who are either over committed or under capitalised.
I cannot see a ROI bank helping you.
UK banks will defnitely want to know where the deposit is coming from and I would suggest any mortgage application would not be agreed based on what you have written.