Secured Loans Advice for Homeowners
If you’re looking to borrow a larger amount, spread repayments over time, or unlock equity in your property without disturbing your current mortgage, a secured loan could be an option, subject to professional advice.
A secured loan, sometimes called a homeowner loan or second charge mortgage, lets you borrow money using your home as security. Because lenders have reassurance through this collateral, you can often access higher borrowing limits, lower rates, and longer repayment terms compared to unsecured loans.
What a secured loan means
A secured loan is a type of borrowing that’s backed by something you own, usually your property. It’s called ‘secured’ because the lender places a legal charge against your home. This charge gives them a claim on the property if you don’t make repayments.
You’ll usually have two separate loans: your main mortgage (the first charge) and the secured loan (the second charge). This setup allows you to raise funds without changing your current mortgage deal or facing early repayment fees, subject to your current lender allowing the loan to be placed on top of their charge.
These loans are often used for:
- Home improvements and car purchases
- Debt consolidation
- Deposits for second properties
- Business investment or education costs
As with any borrowing secured on your home, your property is at risk if you fail to keep up repayments and you should always take professional advice to assess whether this is the best route for you.
How secured loans work
When you apply for a secured loan, you offer your property as collateral. The lender then assesses:
- The equity in your home (the difference between its value and what you owe on your mortgage)
- Your income and regular outgoings
- Your credit history and repayment record
Based on these details, they decide how much you can borrow and what interest rate you’ll qualify for, which depends on the products available.
Once approved, the lender registers their interest on your property as a second charge. You make monthly repayments, which include interest (and possibly capital too), over an agreed term that could range from 3 to 30 years.
Most loans have either a fixed or variable interest rate. A fixed rate keeps your repayments the same for a set period, while a variable rate can rise or fall depending on the lender’s rate or market conditions.
Find out Your Options
Secured vs unsecured loans
Both secured and unsecured loans provide access to credit, but they differ in how they’re structured and what they cost.
A secured loan usually offers:
- Higher borrowing limits
- Longer repayment terms
- Lower interest rates due to reduced lender risk
An unsecured loan offers:
- No requirement to use your home as security
- Smaller borrowing amounts
- Fixed monthly payments over shorter terms
If you’re a homeowner who wants to borrow a large sum or restructure debts affordably, a secured loan often works better. If you only need a small, short-term loan and prefer not to use your property as collateral, an unsecured option may be more suitable.
It may even be the case where a full remortgage is the best route forward, so you should speak with a professional broker that can weigh up all options.
When a secured loan can be useful
A secured loan could make sense in several scenarios:
- You want to raise funds without remortgaging.
If you’re tied into a low mortgage rate, a secured loan lets you release funds without giving up your current deal or paying early repayment penalties. - You’ve been declined for a further advance.
Some lenders are more flexible with secured loans, especially if your credit history isn’t perfect or your income is complex. - You need a larger amount over a longer term.
Because the loan is backed by your property, you can often borrow more and spread the cost over many years.
However, because the loan is secured, it’s important to ensure you can comfortably manage repayments as your home is at risk if you do not pay.
How much you can borrow
The amount you can borrow depends on several factors:
- Equity: The more equity you have in your home, the more you can typically borrow.
- Affordability: Lenders check your income and expenses to make sure the loan fits your budget.
- Credit history: A good record may unlock better rates, but even with some past issues, specialist lenders can help.
Most lenders allow borrowing up to a percentage of your available equity, though the exact limit varies. A mortgage adviser can help calculate this and find the most suitable deal.
The costs involved
While secured loans can be competitively priced, it’s important to understand the associated costs.
Typical fees include:
- Arrangement or product fee: Charged by the lender to set up the loan.
- Interest: Either fixed or variable, depending on the product.
- Valuation or legal fees: Some lenders use automated valuations, while others may require a survey.
- Early repayment charges: Payable if you clear the loan during a fixed-rate period.
You receive a full breakdown of costs upfront, so you know the true cost before you commit.
The risks to be aware of
The main risk is that your property could be repossessed if you don’t keep up repayments. This is why advice is so valuable, to ensure the borrowing is appropriate and affordable.
Other considerations include:
- Total interest cost: Longer terms can mean paying more interest overall.
- Variable rates: If your loan rate changes, your monthly payment could rise.
By working with an adviser, you can choose a plan that balances affordability with long-term value.
Secured loans and your credit score
A secured loan appears on your credit file like any other form of borrowing. When you make repayments on time, it can strengthen your credit profile by showing lenders that you manage credit responsibly.
Missed or late payments, however, will damage your score and may affect your ability to borrow in the future. A missed secured loan payment is viewed as seriously as a missed mortgage payment, so this can have a serious effect.
Consistency and good budgeting are key to protecting both your home and your credit record.
Applying for a secured loan
When you apply, you’ll need to provide:
- Proof of identity and address
- Details of your income and employment, and outgoings
- Information about your mortgage and property value
- A list of existing debts or loans you plan to consolidate or that will remain in place following completion
The lender will review these details to confirm affordability and suitability before issuing an offer for a secured loan.
Alternatives to secured loans
It’s wise to explore every option before committing to a secured loan. Other routes include:
- Further advance: Borrowing more from your existing mortgage lender, which often works out cheaper than applying for a secured loan.
- Remortgage: Moving your entire mortgage to a new deal with additional borrowing. This may result in a higher interest rate across the full balance, or an early redemption charge.
- Unsecured loan or credit card: Potentially suitable for smaller, short-term borrowing but be sure to take advice.
Conclusion
A secured loan can be an effective l way to unlock funds tied up in your home while keeping your main mortgage deal intact.
It may offer flexibility, potentially lower rates when factoring in all borrowing, or may give options when a standard remortgage was not available.
They are not suitable for everyone however so you should always take professional advice first.
If you would like guidance, please get in touch.
