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What is a Secured Homeowner Loan?

A Secured Homeowner Loan is a Loan that is Secured against the Borrower’s Property which means it is a type of loan only available to homeowners.

Secured Loans are often referred to as ‘2nd charge mortgages’ as in most cases the Borrower already has an Existing Mortgage on their Property. The Mortgage Lender will have the 1st charge on the Property and the Secured Lender will have the 2nd Charge. This means that in event of Default, the Mortgage Lender will be paid back all their Outstanding Funds before the Secured Lender is paid back.

To qualify for a Secured Loan, you must have Equity available in your Property. The Amount of Money you can borrow is directly related to the amount of Equity in your Property.

Understanding Loan to Value

Lenders will decide on a percentage of the Equity available in your Property that they are willing to lend you. This percentage is known as LTV (Loan to Value).

Some Lenders will have a LTV of as much as 80% while, for others, the maximum may be 50%. This is an important calculation as it determines that maximum amount of money you will be able to borrow.

Example of Amount Available to A Borrower:

Borrower Owns a Property worth £250, 000They have a Mortgage with Natwest Bank for £150,000So £100,000 of Equity is available in the Property

  • Secured Lender offers 60% LTV
  • Borrower has up to £60,000 to borrow

Remember your home is at risk if you do not keep up with repayments on a secured loan, so think very carefully before taking a secured loan out.

FAQs about Secured Loans

A secured loan is a loan made to a borrower that is secured against the borrower’s property. This gives the lender a “charge” over the property, meaning that if the borrower defaults on loan re-payments, the lender has a legal right to enforce the sale of the property for the recovery of what is owed to them.

The interest rates vary greatly depending on several factors including the credit profile of the borrower, the total amount of the loan and the time period over which the money is borrowed.

The amount you can borrow depends on how much equity you have in your property and the Loan to Value (LTV) offered by the borrower. For example, if you have £100,000 of equity available and the lender offers 70% LTV, then theoretically you could borrow up to £70,000.

A secured loan can generally be used for all legal purposes. It is regularly used for things such as home renovations, debt consolidation and to contribute towards the costs of tuition fees.

You need to be able to prove you are a homeowner and to be able to show proof of regular income to demonstrate to the Lender you can meet the potential loan re-payments.

This is a loan that has a rate of interest that can change over the course of the repayment period. Some lenders peg their interest rate to increases or decreases in the Bank of England’s base rate of interest while other lenders determine the interest rates themselves. Therefore, it is very important to carefully read and digest all the terms of a loan agreement you are considering signing.

While it is common-practice, it is not a legally binding practice for lenders to peg their interest rates to The Bank of England’s. Therefore, many lenders independently arrive at a variable interest rate based on criteria they consider to be the most commercially effective for themselves.

APR stands for Annual Percentage Rate. This essentially tells you the total cost of your loan. The APR figure includes the amount you are borrowing, plus interest, plus any other fees. This is an extremely important figure for the borrower as it enables you to compare the ultimate cost of loans offered by different lenders.

APR can vary greatly because different lenders apply different criteria and systems when arriving at a figure. In particular, APR is impacted by the total period of borrowing, the amount that is lent and the credit profile of the customer. Borrowers with poor credit profiles will be charged greater APR to offset the greater risk in lending them money.

This is a loan where you re-pay the same amount every single month for the duration of your loan agreement. The amount is set out in the loan agreement you sign and it cannot be varied on the part of the Lender.

The time it takes for the funds to be paid out for a secured loan varies, but typically from start to finish the whole process takes approximately 4 - 6 weeks.

Many lenders will allow you to do this. It might enable you to shorten the term of your loan and to reduce your monthly repayments. However, depending on your lender, there may be associated fees and costs which is why it is important to be clear on the conditions of your loan provider.

Most lenders will allow you to pay off your secured loan early. Depending on the lender, there may be additional charges for this. This is one of the many reasons why it is always important to read the contract very carefully before taking out any type of finance.

The additional charges include, without being limited to, the outstanding balance on the loan, an administration fee and an early repayment fee.

This is the amount you will have to pay to bring your loan agreement to an early conclusion. It is effectively the total amount you owe, taking in to account your balance and any additional charges. The additional charges may comprise early re-payment penalties /fees as well as administration fees.

If you are experiencing financial difficulty and struggling to keep up with your payments, then you should contact your loan provider as soon as possible. Ignoring the problem will only make matters worse and could put your home at risk. Lenders have a legal responsibility to treat all customers fairly and will try and work with you if you’re struggling financially. Further help can be sought from themoneyadvicegroup and Step Change Debt Charity.

This is basically the value of your home minus any debt relating directly to it.

So, a property worth £200,000 with a £100,000 mortgage and no other charges placed over it (such as an existing secured loan) means there will be £100,000 of equity.

This stands for Loan To Value and it is the amount provided by a lender which reflects the percentage of the equity available in your property.

So, if you have £100,000 equity and the lender provides £40,000, then the LTV is 40%

Each lender will have a maximum LTV they are prepared to offer. Therefore, if their LTV limit is 70%, this would mean the maximum you could ever borrow with equity of £100,000 would be £70,000

Yes, we have a number of lenders on our panel who will be happy to consider your application.

No. This won’t prevent you being considered by our panel of lenders.

We have lenders on our panel who would be willing to consider this as security for a loan. A lot may depend, in addition to other criteria, on the condition of the space and the existence of insurance policies on the part of the borrower, safeguarding particular standards of structural well-being and a good state of repair for the property.

It is also worth pointing out that we have a number of lenders who will consider taking various types of structures, buildings and land sites as security for a loan. Therefore, if you have assets - such as those just mentioned which fall outside the bounds of a conventional residential property - it may still be worth applying for a secured loan.

Yes, we have lenders on our panel who are happy to consider such applicants. This may, in fact, be the Loan product that provides such customers with their best chance of a successful application since they are offering an asset against their borrowings.

As well as proving chain of title over your property (thereby showing the property is in your name) you can expect to need to show proof of income at a level that satisfies the lender that you can manage the re-payments. Proof of income may be required in the form of pay slips and / or bank statements

A number of lenders will allow you to do so. However, you may incur additional interest and / or administration fees.

This is another term for a “Settlement Figure” and it is the amount you will have to pay to bring your loan agreement to an early conclusion. The “Redemption figure" or “Settlement figure” is the total amount you owe plus any additional charges. The additional charges may comprise early re-payment penalties or fees as well as administration fees.

This will depend on the lender. Some will be prepared to consider this while there are others who will not. It is worth bearing in mind that increasing the term of re-payment will also increase the total re-payable amount.

We have lenders on our panel who can provide loans to such potential borrowers. Information including, but not limited to, the condition of the property and associated insurance policies, the rental yield and the available equity in the property can also be expected to be sought by the lender.

This is a form of insurance whereby the insurer will meet your loan repayments should you be unable to do so because of factors such as death, illness or loss of employment. There are various policies offered at various cost so it’s important to shop around for the most suitable one. It’s also worth bearing in mind that policies won’t necessarily re-pay the full, outstanding loan amount. This is why it’s important to always consider carefully all insurance policy terms and conditions.

Most lenders will expect payment by direct debit and may only accept this as a method of payment. Other lenders may allow telephone or online payment options instead.

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Depending on your Lender, it’s possible you’ll be able to do so. Your re-payment history with your lender is likely to be a factor and your credit file may be re-examined. You will also need to have sufficient equity in your property to receive the additional finance you request.

This means the overall amount you now wish to borrow must meet with your Lender’s criteria. For example, your lender may limit their loan to 60% of your equity (which, as discussed several times, would mean a 60% LTV)

So for example, if you currently have £100,000 of equity and an outstanding loan of £40,000, your loan is equal to 40% of your equity. If the Lender’s maximum LTV is 60%, this means the maximum they would lend on £100,000 is £60,000. Therefore, there may be up to £20,000 more you can borrow on top of your £40,000 - subject to the lender’s additional conditions

Yes. We can match you with Lenders who are happy to consider pensioners for a loan. They will need, as always, to be satisfied you can meet the loan re-payments and will consider, among other things, income provided by state and/or private pensions.

We will pass your application onto a number of Lenders who we think best match your requirements. Each Lender will have their own unique underwriting process. Lenders may want to carry out a full credit search which will show up on your credit file. In addition, the frequency with which you make loan applications will also be a factor that can negatively impact your credit score.

Unfortunately, yes. This is why it’s crucial to feel confident you can repay the loan on the terms upon which it is agreed.

Some lenders will allow this while others will not. Where applicable, the “re-payment holiday” is typically offered at the start of the agreement and interest may be charged for the period of the “re-payment holiday”.

Yes. We would also advise that you consider the possibility of speaking to your mortgage provider first as you may be able to re-negotiate your mortgage on more favourable terms.

Yes. At Loanable, we can match you with a number of appropriate lenders. However, it can be trickier for self-employed people to receive a secured loan compared to regular employees under the PAYE scheme.

The length of time you have been trading and how regularly you pay yourself an income satisfactory to the Lender’s criteria will be important factors for a self-employed person in receiving a secured loan.

A self-employed person who has only recently started trading and/or who re-invests profit and potential personal income back in to their business may have a harder time satisfying the criteria of secured loan providers.

Some lenders will offer secured borrowings against such properties but may require building insurance as a condition of the loan so that the various forms of damage or degeneration can be remedied by the insurers to ensure the property meets an optimised market value.

Other lenders will insist that a property is well maintained to a certain standard as a pre-condition of offering a loan. Ultimately, since requirements vary on a lender-by-lender basis, it is important to be clear on the requirements of the individual loan provider.

Some lenders provide this service. However, it’s important to remember that at the end of the loan agreement term, the original amount borrowed becomes payable as a lump sum.

Yes, they are essentially the same thing in that they are both loans that are secured against a property that the borrower must legally own. The difference is that a secured loan will almost always be the second charge on a property. This means if a property is re-possessed and sold to service debts in arrears, the mortgage provider (who has the first charge) will be repaid first.

Furthermore, the total amount offered for a secured loan (the second charge) will be determined by how much equity there is in a property once the outstanding mortgage has been deducted from the property’s value.

It is also possible for someone with no mortgage on a property to seek a secured loan although this is very rare.

Yes, we can match you with a number of Lenders who provide secured loans to customers with a poor credit history. In fact, if you have poor credit history, this may be the type of loan which gives you the best chance of success as the Lender has a tangible asset to secure the loan against.

This stands for a County Court Judgement and it is an order from the court for you to pay back to a creditor what you owe to them. Failure to do so will mean you will be subject to prosecution by the court. People receive a number of written warnings from their creditors or third party debt agencies before a CCJ is issued. It is important to engage with your creditor and third party agents before the issuing of a CCJ as this way you can try and agree a more manageable re-payment plan; whereas a CCJ could demand of you the total repayment of your outstanding debt in one payment. Furthermore, CCJ’s can be damaging to your credit profile and your ability to gain credit in the future.

Yes, you can, although their are fewer lenders who will be willing to offer a secured loan in this set of circumstances than if you were the outright owner of a property. Also, you will only be able to borrow against your percentage share of the equity and it is possible the other co-owner’s consent may be sought.

While it is possible to do so, we at Loanable recommend that you think very carefully about whether you can simultaneously keep up with the re-payments of more than one loan agreement as this can lead people in to financial hardship.

We would also recommend seeking independent financial advice to anyone already experiencing hardship. There are many services who provide this including moneyadviceservice.org.uk

An over-payment occurs when a borrower re-pays an amount which exceeds what is contractually obliged of them - usually with a view to re-paying their loan over a shorter period than they are contracted for.

Depending on the Lender, over-payments may incur additional charges. You will need to speak to the individual lender to find out what their conditions are.

It’s possible that we can help match you with a second secured loan provider. There are, however, some mortgage providers and (first) secure loan providers who, as a condition of their lending, will prohibit additional secured loan agreements. Where this is not the case, the additional lender will have to consider there to be enough equity remaining in your property for them to offer a loan (loan providers each have their own minimum equity requirements)

Second Secured Loan Providers are also likely to charge more interest since if the borrower defaults, they are at the back of the queue for re-payment and so carry a greater risk which is reflected through the higher interest rate.

This may be problematic as the lenders we match you with will look to see a source of income to meet the repayments of the loan - and proof of jobseeker’s allowance may not satisfy their criteria.

This, again, may be problematic as our lenders are most likely to want to see “liquid” assets or incomings; i.e. actual disposable income that can be used to meet loan repayments. “Paper” or “intangible” assets (ones which are not already monetised such as stocks and shares) will not be likely to fit the lending criteria of our panel of lenders.

The most important thing is to be totally upfront with your lenders and maintain a dialogue to give you the best chance of working towards a mutual solution.

The consequences of not re-paying both loans can be serious, although it is also worth bearing in mind that a secured loan provider can make you sell your home and/or other assets whereas an unsecured loan provider cannot.

Yes, if you receive a loan and consistently meet your loan instalments on their due date this can help improve your credit profile.

Each lender has their own unique lending policy so it’s very difficult to answer why your loan has been declined. Lenders will decline borrowers for several reasons, including those who have have poor credit history, those who lack sufficient equity in their property and those who are deemed unlikely to comfortably service the loan re-payments.

Some lenders will explain the exact reason that you have been declined a loan, while others will not share the information with you. If you have been declined a secured loan recently, it’s a good idea to obtain a recent copy of your credit file and have a look for any obvious reasons.

This will vary depending on your mortgage provider, but the answer is: not necessarily. A number of mortgage providers will be willing to vary their terms for the recipient of a secured loan. They, may, however, charge a fee which is why it’s essential to speak to your individual mortgage provider.

You will need to check with the mortgage provider in question, but there is a good chance you will be able to use a secured loan for such purposes.

Yes, there are insurers who provide policies so as to meet secured loan re-payments should the borrower pass away during the term of the loan. This can be a valuable form of insurance as it can reduce / prevent debt being bequeathed to the borrower’s heirs.

The first thing to do would be to follow the complaints procedure that the Lender ought to have in place. If you remain unhappy and feel you have a genuine grievance, you can then refer your complaint to the Financial Ombudsman Service (FOS)

No, our panel of secured loan lenders require the borrower to be both a UK resident and a UK citizen.

In such circumstances, agents of the court can make you sell your home to try and recover, alongside other creditors, the total amount of money owed to them.