Secured Loan Advice
With our extensive experience here at Just Mortgage Brokers, we endeavour to offer you the best solution in finding the secured loan that is right for you, whether you’re looking to renovate an existing property, complete a development project or place a deposit to add to your property portfolio. Secured loans are available for so many different reasons.
Can I Get a Secured Loan?
Obtaining a secured loan is very much the same as applying for a standard mortgage albeit the lenders criteria may differ slightly. You will of course need to own your home that will be used for the security or a rental property should you be looking at a buy to let secured loan.
The availability is also invariably via specialist secured loan lenders as most main mortgage providers are not in this market. The finance can also sometimes be referred to as a second charge mortgage due to the security sitting next in line behind your main mortgage loan. Do however note that your legal obligations to ensure the loan payments are maintained are the same as for your main mortgage and the lender can still repossess your property if their payments are not kept up to date regardless of the payment situation of your main mortgage.
Although not a guarantee, due to the loan provider having a second charge over your property and not the first, expect the interest rate you are charged to be higher than that of similarly priced main mortgage products. However, secured loans can still provide a cost effective way to borrow funds in the right circumstances. This can be for situations such as, where your main mortgage provider cannot assist perhaps due to their assessment of affordability or your credit history, or where simply taking out a secured loan proves more cost effective then remortgaging.
Secured loans are generally regarded as a slightly more specialist area of the mortgage market and therefore should you be interested in seeing if this type of lending is right for you please contact us today where one of our advisers will be on hand to assist.
Secured vs unsecured lending
Unsecured lending includes borrowing on credit cards or store cards, and loans that are not secured against a property or other tangible asset. This type of lending is a higher risk for the lender, and so the interest rates charged tend to be higher than on secured loans. The amounts available to borrow tend to be lower – typically between £1,000 and £25,000 – and the term of the loan is generally shorter; between one and five years. If payments towards unsecured borrowing aren’t kept up, then while action will be taken to recoup losses, there is generally no immediate right on the part of the lender to take property in lieu of money owed.
A tangible asset is something that has a value and that could be sold in order to recoup losses in the event that loan payments aren’t maintained. If a business were looking to raise funds, then their tangible assets could include land, property, vehicles or machinery. In the case of a personal secured loan, tangible assets could potentially include jewellery and works of art, plus land or property. The most common asset used to secure a personal loan is property.
Because the loan is secured against a tangible asset – your property – the risk to the lender is reduced. This means they are typically able to charge a lower rate of interest. Loans secured against property tend to be for higher amounts of money – £10,000 to £500,000 – and may be repaid over longer periods of time, typically between five and twenty-five years. This can make the monthly repayments more affordable.
In short, a secured loan will almost always be more affordable in terms of interest rates and monthly repayments. However, you should weigh this up against any perceived risk involved in securing additional debt against your home together with any associated costs to set up the loan. As well as being confident the payments are affordable alongside whatever other financial commitments you have, you would be wise to do a little contingency planning. For example, would you be able to continue meeting your payments if you were to lose your job, have an accident, or become ill?
I’ve already got a mortgage on my property; can I take out a secured loan as well?
A secured loan can be taken out on a property that is also subject to a mortgage, provided there is enough equity in the property to cover the amount of the loan. Also, when working out roughly what you should be able to borrow, bear in mind that lenders will generally limit themselves to an overall loan-to-value (LTV) ratio of 85%.
For example, if your property is valued at £240,000 and the amount left to pay on the mortgage is £140,000, then you have equity of £100,000 in the property. If the lender is operating on a 75% LTV ratio, then the maximum total secured borrowing allowed against the property is £180,000. The mortgage accounts for £140,000, which means you could potentially take out a secured loan for up to £40,000. If you need to borrow more, then there are lenders who work to a higher LTV; a specialist loan adviser would be able to offer assistance.
What are the reasons people take out secured loans?
People borrow money for all sorts of reasons. It could be to make renovations or to pay for home improvements, to raise the deposit needed to buy an additional property, to buy a vehicle, to pay university tuition fees, to start a business venture or to consolidate debt. Secured loan providers may decline to lend money for some specific purposes, such as gambling or stock market investment.
How likely am I to be accepted?
As we’ve established, secured loans are so named because they are secured by a legal charge against the value of your property. This reduces the risk to the lender, which in theory improves the borrower’s chances of being accepted.
Any potential lender will look not only at the value of your home and the available level of equity but also at your personal credit history. Having a less than perfect credit history does not prevent you from applying for a secured loan. In fact, because the loan is secured, you could arguably be more likely to have a better chance of being accepted than you would if you applied for an unsecured loan. Specialist lenders exist that deal in secured loans for those who have had previous problems with debt, including (for example) County Court Judgments (CCJs), defaults and Individual Voluntary Arrangements (IVAs).
However, you should remember that if for any reason you fall behind with the repayments, you may either have to sell your home to raise funds to clear the debt or your home may be repossessed. In other words, the security is in favour of the lender, not the borrower – the money they lend is backed up by a tangible asset. Having said that, secured loans can be a good way to raise funds for some people, not least because they can be more affordable than unsecured loans.
Pros and cons of a secured loan
Here’s a quick checklist to help you decide if a secured loan might be a good option for you.
- Interest rates are likely to be lower than unsecured lending.
- The chances of being accepted, even with a poor credit history, are potentially higher.
- You can borrow a larger amount of money.
- You can repay it over a longer term.
- Even with a lower interest rate, a longer repayment term may make the loan a more expensive option overall.
- Securing additional debt against your home may be risky.
- If you fall behind on the payments, you could lose your home.
While ultimately the decision as to whether to proceed with a secured loan is yours, you can access specialist, expert advice from Just Mortgage Brokers to help you arrive at the right decision.
What is the criteria for a secured loan?
Criteria for a secured loan or second charge mortgage is very similar to that of a standard mortgage. Also as with standard mortgage providers each will have its own individual set of rules as to how they assess you and your application.
There are perhaps some main broad differences that apply to most, such as:
- Affordability: Secured loan companies can on occasion offer slightly increased levels of loan sizes compared to main mortgage providers based on a more flexible approach to how they assess your ability to afford the loan. They are however still regulated by the Financial Conduct Authority and have to apply a level of sensibility in their assessment.
- Purpose of the loan: Where main mortgage providers will be very specific about what the reasons are for any loans being applied for ie rarely will they permit for speculative or business purposes, secured loan companies will consider finance for any loan purpose including tax bills.
- Loan to value: This is one area where a secured loan may give greater restrictions than a main mortgage provider. Generally speaking the maximum loan to value will be 85% for residential loans and 75% for buy to let finance. This however is not necessarily the same right across the board so even if you may require more than this, it is still worth enquiring.
Buy to let secured loans
Much has changed in the buy to let market over the last few years and this in turn has also impacted buy to let mortgage criteria. These changes have seen an increase in the level of buy to let secured loans where for many, improved assessments have enabled them to borrow funds that they perhaps would not have ordinarily been able.
As a secured loan is still a form of finance using the property as security, the main criteria remains constant in that the rentable value of the property will determine the level of borrowing permitted. This is commonly referred to as the Interest Coverage Ratio or ICR. However some secured loan providers are happy to also take an applicant’s personal income into consideration that on occasion enables a higher loan amount to be achieved.
Buy to let secured loan companies are generally also more flexible when it comes to the number of buy to let properties a borrower can have. This can be especially useful for portfolio customers and the looking to build the number of buy to lets they own.
Although not common practice by all secured loan providers, there are some that will consider finance for properties that are not initially in a rentable condition that would not therefore usually qualify for a standard buy to let loan at the outset. Bridge to let finance could hold the key for these clients where bridging finance can be offered initially and then converted to a buy to let mortgage once the property has been completed.
Can I get a secured loan with bad credit?
A question we are frequently asked is, can I still get a secured loan if I have bad credit, and although we can never guarantee that anyone will be approved until we have the full facts, it is certainly possible to obtain a secured loan with a history of bad credit. Indeed one of the main factors for many when enquiring about a secured loan, or sometimes referred to as a second charge, is that they have been declined by their main mortgage provider for this very reason.
A secured loan company will still need to know the full facts and figures including dates and amounts of any bad credit events, as with any other lender, however, as this is a sector of the market that looks to assist in this area their understanding and criteria is generally better suited to your individual needs.
Invariably, as with any mortgage finance, should there be a history of bad credit, expect the rates available to you to be higher than for those who have a good credit rating. You may also be more restricted in how much you can borrow against the value of your property, commonly referred to as your loan to value or LTV.
Secured loan lenders
Secured loans, or sometimes referred to as homeowner loans or second charges, are fairy widespread in their availability however, what you will typically find is that the lenders offering these loans will be specific providers in this sector and not your main, and perhaps more recognised, names. This however does not mean your lending is any more at risk nor that you will be treated in any different way as these providers are still regulated by the Financial Conduct Authority and have to abide by the same regulatory rules that your typical mortgage providers do.
It is also worthwhile pointing out that your obligations also remain the same, where your home or investment property when used as security is still at risk and can be repossessed should you not maintain your monthly payments.
With still such a wide variety of lenders in this sector and with each having their own criteria and ways of assessing affordability, it can appear a daunting experience when trying to find the right secured loan lender for your individual needs. Our expert advisers are on hand to discuss your initial requirements, and where a secured loan is deemed a viable solution to your needs our secured loan contacts are well placed to source the right plan for you.
Secured loan rates
A secured loan is in many ways the same as a main mortgage aside of the fact that the provider is registering the loan as a second charge behind the main mortgage providers loan. This is why this type of lending is also sometimes referred to as a second charge loan.
The very fact of the loan being registered second in line over the security will invariably mean that the rate offered will be higher than that offered by a main mortgage provider. However as this sector of the market has become more popular, the increase in availability has in turn driven competition and as such made rates better than they have been historically when compared.
As these loans are treated very much in the same manner as a standard mortgage you also still get the choices of the same products. Although not all are offered by each and every provider, schemes such as fixed rates, discounted or tracker variable rates are still available giving great choice.
Again, as with the main mortgage market, influencing factors will determine which rates are available to you such as, the type of loan ie residential or buy to let, the loan to value (LTV) ie the more you wish to borrow against the value of your home the higher the rate will typically be. Your credit history will also be considered and therefore expect that those with a good credit rating to be offered better rates than those that have a history of bad credit.
A secured loan can be the right form of finance in the right circumstances and appreciating the rate can be an influencing factor of this bearing true, our experts are on hand to assist so why not contact us today to discuss your specific requirements.
Secured loan brokers
Whatever you are raising funds for, Just Mortgage Brokers has a team of specialist advisers with the skills and knowledge to source the best available secured loan for you.
You’ll be allocated your own dedicated adviser who will guide you through the entire application process. As a firm of brokers with unlimited access to the UK market, we have access to exclusive deals not available on the high street. We consider each case individually and on its own merits, irrespective of credit history or status, meaning each and every customer can be confident of securing the best available deal for their personal circumstances.
We’re confident you’ll be delighted with the individual service you receive, as we endeavour to find you the best possible secured loan, tailored to your specific needs. For the best-secured loans on and off the high street, look no further than Just Mortgage Brokers. Contact us today for free, impartial advice.