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Personal loans and mortgage application

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 16, 2023

Personal loans & mortgage applications

You might be curious about how a personal loan could impact your chances of getting approved when you apply for a mortgage.

An individual loan will affect your mortgage affordability. Lenders will assess your credit and financial situation to determine if you can afford the monthly mortgage payments.

It doesn’t matter if you have a personal loan or want to borrow against a mortgage. Or if you just want to consolidate your debts with a mortgage.

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Can personal loans affect mortgage applications?

Yes. Mortgage lenders will consider all your debts when deciding if you are eligible for a loan and how much.

They will look at your credit history when deciding whether you can afford the monthly payments.

You are already paying some of your income to pay this debt, it will impact how your application is evaluated.

Experts recommend avoiding personal loans if you are applying for a mortgage.

A personal loan taken within the first three months of applying for a mortgage can affect your credit score and could result in your mortgage application getting rejected.

Some brokers suggest you wait six months between applying for a personal loan and applying for a loan to ensure you are not denied a mortgage.


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These loans could impact your mortgage affordability.

Applying for a personal loan or one will put a mark on credit. This will be visible to lenders when they evaluate your mortgage application.

You will be marked if you apply for one of the following loans:

  • Personal loan
  • Car financing
  • Credit card
  • Overdraft
  • Mobile phone contract
  • Utility contract

The lower your chances of being approved for a mortgage the more searches you make in a short time frame.

You can apply for credit if you must, but only if you can afford it.

Some lenders may decline your application if you have taken out a payday loan within the 12 months before applying for a mortgage.


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What is the difference between a personal loan and a mortgage loan?

A personal loan is a loan that is not secured by an asset from a bank, credit union or another lender. These loans are also known as unsecured loans.

A mortgage is a loan that’s used to purchase property or land. A mortgage, unlike personal loans, is secured against the property’s perceived value until it is fully repaid.

If you have a personal loan, can you still get a mortgage?

Yes! Yes! Although lenders will consider any debts you have when assessing your mortgage application, they won’t deny you a mortgage.

Mortgage lenders will assess your ability to pay off outstanding debts. If you have personal loan debt, you will need to show that you can repay it all.

Different lenders will not evaluate your mortgage applications in the same manner. Talk to a broker who works with all market participants to get the best mortgage deal for personal loans.

Whole-of-market brokers have access to UK mortgage lenders and can identify lenders that will accept personal loans.

Specialist brokers can tell you which lenders will most likely accept your mortgage application. They can also help ensure that your application is successful without adverse credit effects.

What could my loan do to improve my application for a mortgage?

A personal loan can sometimes help you with your mortgage application if you are strategic. You must look long-term to turn personal loans in your favour.

Personal loans can support your mortgage application in a few ways.

  1. A personal loan will help improve your credit rating as it shows that you are responsible. Experts recommend taking out a personal loan or making credit repayments before applying for a mortgage. This will help you to show that you are responsible and can improve your credit rating.
  2. You can use a personal loan to restructure and refinance credit card debts or any other personal loans.
  3. To get high-interest rates, you can use a personal loan. You can get a loan and put the money in a high-interest savings account. Then, you can use the accrued funds for your mortgage deposit. This approach is discussed in greater detail in the following section.

The bottom line is that your personal loan shouldn’t prevent you from getting the mortgage of your choice – provided you can pay additional debt and don’t take out loans in the three months prior to your application.


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Are personal loans available to help with a mortgage deposit?

You could use a personal loan to deposit your mortgage if you are looking for a long-term strategy.

Some lenders may not accept personal loans as a deposit on your mortgage. However, others might. We work with a whole-of-market broker who will be able to help you find the best personal loan deal.

This approach is worth considering if you’re interested in it:

  • Make sure you can afford both the personal loan and the mortgage. Before you commit to any loan that may not work in your favour, it is a good idea to talk to a mortgage broker.
  • You should take out a personal loan at least six months before you apply for a mortgage. Many mortgage lenders will ask you to prove that the money used for your deposit was in a bank account for a few months before it was used as your mortgage deposit.

To avoid credit rating damage, consult an expert

A personal loan application can leave a mark on credit files that mortgage lenders will be able to see. This mark could be a problem if you apply for a personal loan within three months of applying for a mortgage.

You could be denied a second personal loan if you apply for it twice.

Multiple credit applications in a short period can affect your credit rating and cause concern for mortgage lenders. If your application for a mortgage is rejected, it could reflect poorly on your credit rating.

Our brokers have access to all UK lenders and are therefore whole-of-market. Even if you have outstanding loans, they will be able to tell you which lenders will approve your mortgage application.


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After you have been approved for a mortgage, can you apply for a personal loan?

Taking on additional borrowing after receiving mortgage approval is not a good idea.

You should not apply for loans, credit cards, or any additional financing before you have secured your mortgage.

Any new credit application will be flagged as suspicious if your mortgage lender decides to run a credit check again for any reason.

Your lender could withdraw your mortgage offer if they believe your new credit agreement will impact your mortgage repayment.

After you have received a mortgage offer, it is possible to get a personal loan?

It is not a good idea to take on more debt after you have received a mortgage offer.

Your mortgage lender could consider a personal loan a threat to your ability to repay your mortgage. This could result in your lender withdrawing your offer for a mortgage.

Tell your lender if you consider taking out another credit agreement during or after your mortgage application process.


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After completing your mortgage, can you apply for a personal loan?

After you have paid off your mortgage and moved into your new home, you will likely spend money on remodelling your home. This can add up quickly.

Credit or personal loans may be necessary if you don’t have the extra funds to cover these expenses.

A personal loan should be possible for homeowners with mortgages. However, the amount you can afford to repay should not exceed your monthly income. If you can wait a while before making large purchases, the time between applying for credit and taking out your mortgage should work in your favour.

Many furniture, carpet, and electrical stores offer 0% financing deals to help customers purchase the goods they sell. However, if there is still money owed after the 0% period ends, it could lead to high prices. So budget carefully.


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Can I add to my mortgage loan?

In theory, it is possible to add your personal mortgage loan to your mortgage. However, there are many things you should consider before doing this.

Consolidating your loan and other debts into your mortgage may seem appealing. However, it is important to consult an expert before you make any major decisions.

These are some things you should consider before taking on more mortgage debt.

  • Are you able to borrow more equity?
    You borrow against your mortgage to get the value of your property. To borrow more against your mortgage, you need to have enough equity in your home. Otherwise, borrowing more will likely be extremely expensive or difficult to arrange.
  • Is your mortgage agreement allowing you to borrow more money without additional costs?
    Certain mortgage terms do not allow for further borrowing. Even if they do, you will likely be charged an additional fee. All fees and associated administrative costs will be added to the loan, increasing the total amount borrowed. These fees will impact the amount you pay in interest and your monthly payments.
  • Do you need to remortgage your home?
    Additional fees may be if you need a new mortgage or a refinance to consolidate your debts. Exiting your existing mortgage arrangement may result in fees and penalties that can be prohibitively costly. Fixed-rate mortgages have very strict rules regarding early withdrawal and could result in high early repayment fees.
  • What would it cost to add your loan on top of your mortgage?
    Spreading the cost of a small personal loan over the mortgage term may be more costly than you think. The chart below indicates how much.
    Talk to your mortgage lender if you are seriously considering adding personal loan debt to your mortgage. Ask how much you could borrow and what the cost would be.
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Mortgages vs personal loans

You may be weighing the pros and cons of borrowing money to pay off your mortgage or getting a personal loan. Read on to learn how loans compare to mortgages.

Do you need a personal loan or a mortgage loan?

Mortgage loans are typically repaid over a longer period, so your monthly mortgage loan repayments are likely lower than personal loan repayments.

A personal loan of £10,000 with an interest rate of 8% for two years will cost you approximately £450 per month.

An exact copy of the same £10,000 debt would run around £70 per month on a 20-year mortgage at a 6% interest rate.

Remember, however, that you will be paying an additional £70 for a longer period so that you could end up with £6,000 in the bank.


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Do you need a personal loan?

When taking out a loan or extension of your mortgage, the most important thing is to know how much money you are borrowing and for how long.

The length of your loan repayment term is important. This will determine how much interest you pay.

It is important to determine how much you can afford each month. Personal loans are almost always better if you pay off the debt in five years instead of 20 or 25.

Personal loans are more expensive than mortgages, but they last for a shorter period and are usually paid off sooner than your mortgage.

Despite a mortgage’s lower interest rate than a personal loan, the mortgage repayment term is generally longer, so you will pay more interest.

However, a personal loan wrapped in a 25-year mortgage would be very expensive. An extended mortgage might be a better option if you have a long repayment term.

Are you looking for a personal loan?

The interest rate you offer will vary depending on whether you want a personal loan or a 2nd mortgage.

Lenders will examine your credit history.

  • Clean credit and a lower loan-to-value (LTV) mortgage on your home will reduce risk and help you get a better rate.
  • You’re more likely than others to receive a higher interest rate and be considered high-risk if you have poor credit.

You may have to factor in debt repayments for a second mortgage.

These costs could include:

  • Setup fees and arrangement fees
  • Broker fees
  • Legal costs
  • Survey fees

For early repayment, there may be additional charges.

Loans secured against your mortgage have the advantage of allowing longer repayment terms. This allows you to keep your regular payments affordable.

The downside to this is that the monthly payments are more manageable. However, you will pay much more interest over the term, eventually costing you more than you thought.

This service is free, and you don’t have to change your credit rating.


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Mortgages and business loans

Business loans may be an alternative to a mortgage depending on the situation.

A business loan may be an option if you:

  • You can borrow less than £25,000. It is not economically sensible to borrow less than £50,000 due to the administrative and legal costs associated with setting up a commercial loan. Commercial mortgages are subject to minimum loan requirements by some lenders.
  • You wish to borrow on an unsecured basis. While business loans can be unsecured, they can also be used to secure a loan against a property.
  • A strategy is developed to help you reach your goal of repaying the debt in three years. You might also consider a commercial bridge loan if you can repay the debt in three years or less. Although you may get secured business loans that allow you to borrow more than £25,000, these are not usually considered an alternative to a commercial mortgage because of the higher interest rates.

Talk to an expert about personal loans and mortgages

We can connect you with someone who can help you understand how a personal loan could affect your ability to apply for a mortgage.

We work with mortgage brokers on the market and have access to all UK mortgage lenders.

Contact us to speak with a mortgage broker who can help you answer your questions about personal loans and mortgages. You can also make an online enquiry.


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