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Original poster

Personal loan for house purchase?

35 replies

breezyday · 22/10/2021 08:23

Is it possible to purchase a house using mostly cash and a small personal loan? We are just short on being able to buy a home and for many reasons it seems easier to look at applying for a personal loan. Is this possible? What are the pros / cons? Thanks

OP posts:

Malin52 · 22/10/2021 08:29

Most banks won't allow you to use a loan as a deposit. They will ask where the money has come from and unless its equity or savings it's going to be an issue.

ThisIsStartingToBoreMe · 22/10/2021 08:30

I don't think they will give you a personal loan for a house as it's an unsecured loan, unlike a mortgage.

I'd be tempted to tell them the loan is for something else to be honest . How much money are you talking about?

Malin52 · 22/10/2021 08:31

A small loan from a friend or family member is easier with a gifting certificate stating you don't have to repay it. Easier if you have someone who will gift it of course!

LawnFever · 22/10/2021 08:32

You can get apply for mortgage for any amount, I don’t think personal loans are valid for property purchases.

But a mortgage application for a low amount when you have a lot of equity should be no harder to get approved than a personal loan.

JenniferAllisonPhillipaSue · 22/10/2021 08:33

Interest rates are traditionally lower on mortgages than on unsecured loans.

Original poster

breezyday · 22/10/2021 08:43

It's only about £20-£30k we need as we have the rest in cash. Trying to move to another area which involves new jobs and house purchase so we were thinking of getting a loan now whilst we still have jobs and buying the house before moving. We want to go self employed.

OP posts:

Malin52 · 22/10/2021 08:43

@JenniferAllisonPhillipaSue

Interest rates are traditionally lower on mortgages than on unsecured loans.

They are always lower as they are for longer. I think OPs point is they need to make a baseline deposit so want to get an unsecured personal loan to make up the difference

Malin52 · 22/10/2021 08:47

Sorry OP I don't know any lenders who accept a deposit part funded by a bank loan.

Malin52 · 22/10/2021 08:52

We were 10k under the mimimim deposit needed for the property we wanted. We said we'd get a loan for the remainder and they said no. Broker tried all the banks. All said the same.

They did accept a gift from a family member for the same amount with a gift certificate.

Paranoidandroidmarvin · 22/10/2021 08:52

@Malin52 my friend thought that. But turns out the gift of money causes no end of problems. No idea why. It’s so hard isn’t it.

Carolinerexy · 22/10/2021 09:08

Yes it is possible - just dont tell them its for the purchase of a house!

Carolinerexy · 22/10/2021 09:11

(if you are buying the house outright the bank has nothing to do with it - the estate agent/lawyer will need to know your source of funds but just show them a savings account statement with the full amount in and they will be fine)

Mumski45 · 22/10/2021 09:13

@breezyday I think it depends on whether or not you need a mortgage. Replies on here assume you do and that the loan is to add to your savings to create a bigger deposit.

I read it that you don't need a mortgage and you almost have enough cash to buy outright. If this is the case then the answers could be different as if you can get an unsecured personal loan for 20-30k and not need a mortgage then there is nobody else to say ' no' to it. It would then depend on the terms of the personal loan and your ability to pay it back.

NoSquirrels · 22/10/2021 09:19

Why would it be better for you to have an unsecured personal loan at a higher rate of interest, rather than a small mortgage of the same amount at a lower rate of interest?

I can’t see the advantage. Both ways you have a loan to pay back…

Jenjenn · 22/10/2021 09:26

I also read that you don't need a mortgage just 20-30k extra on top of what you already have in cash. Tbh I think it's fine as long as you can afford the repayments. The interest rate will be higher of course than a mortgage. But is it even possible to get a mortgage as small as 20-30k? I thought the minimum amounts for new mortgage lending were higher than that.

Woeismethischristmas · 22/10/2021 09:35

My uncle did this. His bank completely f*caked him around re. Mortgage. Agreeing then pulling out. Scotland so you’d be liable for various things if you fail to complete. Ended up borrowing money from a few places. Bank actually extended his overdraft a lot. It was really tight for him and his now wife for a while but it is possible.

It is possible to get a secured loan on a property to bring interest rates down but obv need to own it first. I’d possibly be inclined to take out a short term loan, then refinance with a secured lower interest loan further down the line.

JLQ1020 · 22/10/2021 09:37

No you can't use a loan for a deposit on a house. Not only do you need to proof where the funds come from but the fact that it will impact on affordability and that there will be a hard credit search done on your credit file just before applying makes you highly unlikely to be accepted.

Youngatheart00 · 22/10/2021 09:38

I would go for a mortgage every time - do things by the book. Otherwise you risk running in to difficulties.

If you take the personal loan you’ll have to state what it’s for. Lying is fraud and could get you in to a lot of trouble.

Even if you get through that bit, the solicitors dealing with the purchase have an obligation to check for money laundering and so they will be looking for the source of funds for your deposit. Showing them just a savings account won’t work - they will want to verify this and of course when they see the large deposit from the loan that will beg the question.

I’d just take out a small mortgage, with an extremely low LTV the process should be relatively simple and swift and you should be able to get a really low rate

titchy · 22/10/2021 09:41

Just get the mortgage, then go self-employed. No need to tell lender then. Job done.

Meloncurse · 22/10/2021 09:50

There's no reason at all that this isn't possible. Yes it would be an issue if you were talking about a mortgage as well but if you're otherwise making a cash purchase it shouldn't be an issue.

I'm not sure you'd get a mortgage for 20k anyway.

Cons are of course a higher interest rate, although we got reasonable terms when we last took out a personal loan for home improvements as extending our mortgage wasn't straight forward.

RitaFires · 22/10/2021 10:06

I can't see why taking out a loan to top up your cash to purchase a house outright would be a bad idea. Yes you get a better rate on a mortgage but for a smaller amount of money it might be faster and easier to just get a personal loan. Obviously it's a terrible idea to borrow for a house deposit but I don't see anything in your posts that would indicate that you want to do that.

ComtesseDeSpair · 22/10/2021 10:58

Many lenders do not like to deal with a home loan of less than £25,000 because it can then be covered by the Consumer Credit Act. This imposes strict limits on lenders.

But if your alternative is a personal loan, which will come with much higher interest rates than a mortgage would, it will almost certainly make better financial sense to take out a mortgage for technically more than you need i.e. £50k at a low rate and keep some of your cash in reserve.

Hoppinggreen · 22/10/2021 11:04

Am I the only one reading here that OP doesn’t need a mortgage for the majority of the money?
They say they have cash but are short £30k. In which case it’s nobody’s business where these additional funds come from.
Lenders might not want to lend for the purposes of a house purchase if it’s a personal loan but you could say home renovations or similar and the lender would have no idea what you actually spend it on.
The interest rate will probably be higher than a mortgage though

lunar1 · 22/10/2021 11:11

You would be a cash buyer once you take the loan out. There is absolutely nothing to stop you doing that.

Rollercoaster1920 · 22/10/2021 11:12

I took out a personal loan to buy a plot of land. I did it so I only had a single mortgage, and didn't have to faff around merging the plots at land registry. It was £13 to £15k. At the time I got the loan for 4% or so when the fixed mortgage rate was 2.99%, so it was a higher APR. But the unsecured personal loan had no arrangement fees, and was able to be paid off early with no early repayment fees, so was cheaper overall.

Conveyancer will want proof of funds, so get the loan into an account and you are good to go.

IIRC the personal loan application asked what the purpose of the loan was - I think I said home improvements!

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