Equity is defined as the difference between the value of your home and any mortgage loans secured on it. If the current value of your property enables you to borrow against equity, a UK secured homeowner loan could be ideal.
A second charge on your home may enable you to consolidate your debt, buy a car, perform home improvements, purchase new electrical goods, go on a foreign holiday or start a new business.
Reasons for Taking Out a UK Secured Homeowner Loan
- Extend the borrowing term over a period of up to 25 years. For example, a £20,000 low rate secured loan at 8% over 25 years will cost you £154.36 per month. Reduce the term to 5 years and the monthly payment increases to £405.53.
- Subject to equity, you can borrow in excess of £100,000. If you owe a lot of money and want to consolidate debt or need to meet the cost of setting up a business, the best homeowner loan could provide the only suitable way of achieving this objective.
- A secured bank loan is more likely to be approved than an unsecured personal loan. If you have a history of poor credit, it could be the only way you can get approval.
Costs and Risks Associated with Secured Bank Loans
- Your property will need to be valued by a surveyor which means that it will take longer to arrange and incur costs. Although most lenders will add this to the principal, some will require an up-front payment in case your application is rejected.
- Extending the borrowing term will increase the cumulative interest that you need to pay. For example, a £30,000 low rate secured loan at 8.4% over 20 years will accrue £32,028.32 interest. The same advance over 5 years will accrue total interest of just £6,843.06.
- Secured loans are usually expensive to set up. If you wish to pay off the balance early, you’ll need to pay an early redemption penalty.
- When taking out a UK unsecured homeowner loan, it’s important to appreciate that choosing to borrow against equity puts your home at risk. If you don’t keep-up with the repayment schedule, you property could be repossessed. If there is a deficiency, you remain accountable for the balance for 12 years.
Secured Loans for Homeowners: Borrowing Against Equity with a Bad Credit History
Opting to borrow against equity could be the only affordable way to get the cash you need, especially if you have a bad credit history. If you’ve defaulted on previous credit agreements, this will be recorded by credit reference agencies. This makes getting credit approval far more difficult.
Lenders use a process known as credit scoring to underwrite the risk of default. If you have a low credit score, you probably won’t be able to borrow money without collateral. You may wish to explore alternative debt solutions, such as an Individual Voluntary Arrangement (IVA) or debt management plan.
Pros and Cons of a UK Secured Homeowner Loan
The best homeowner loan gives you the ability to borrow against equity and spread the cost of repayment over an extended period of time. However, secured loans for homeowners should be seen as your last resort as they give your creditors greater powers to recover their money if you default.