Homeowner Loans: Your Essential Guide
Homeowner Loans: Your Essential Guide
There’s an attractive alternative to unsecured borrowing, and it could be right for you.
If you need to raise considerable funds, taking out a loan may well be an option you’re considering. A homeowner loan or second charge is a form of secured borrowing. It involves using your home as security to borrow a lump sum. UK mortgages are secured loans too, but a homeowner loan isn’t linked to your mortgage deal. It’s a separate agreement and doesn’t take precedence over your mortgage.
We’ve created this homeowner loans guide to answer frequently-asked questions about these specialist products. What’s more, you can contact us for tailored, independent advice.
What are Homeowner Loans for?
The purpose of taking out a homeowner loan is to raise enough funds to cover significant outgoings.
This secured loan can be used for almost any legal purpose, including business purposes (unlike some unsecured loans). People often take out homeowner loans to pay for new vehicles, home improvement, weddings or university fees; things they feel are necessary and life enhancing. These specialist products can also enable you to streamline your financial affairs by consolidating existing debts or settling tax bills.
Because homeowner loans have many uses, they have broad appeal. And data from the Finance & Leasing Association, a trade body, indicates that demand for them is stronger now the UK is emerging from the pandemic. Just over 3,000 homeowner loan agreements were made in July 2022 compared to around 1,000 in July 2020.
Who’s Eligible for a Homeowner Loan?
You need to own either all or part of your home. That’s because you’ll be borrowing against your equity (i.e. the value of your property minus anything left to repay on a mortgage and other secured loans).
Homeowner loans may not be suitable for people in later life due to long repayment periods. If you’re 55+, you could consider equity release with a lifetime mortgage instead.
How Much Can People Borrow?
Homeowner loans are typically worth at least £10,000 (though it’s possible to borrow less). Borrowing over £100,000 isn’t unheard of.
The amount you can borrow largely depends on how much equity you have. The more of your home you own, the more money you can borrow.
Lenders consider the amount you want to borrow in relation to the value of your equity. Each homeowner loan product has a maximum loan-to-value (LTV) percentage. For example, an LTV of 60% means you can borrow up to 60% of the value of your equity.
Other factors also affect the amount you’re able to borrow, including your employment status, income, existing debts and credit history. You’re likely to need to provide evidence regarding your financial status, such as payslips.
What are the Benefits of Homeowner Loans?
Because homeowner loans are secured against bricks and mortar, they can have significant advantages compared to unsecured borrowing.
People can typically borrow larger amounts than with personal loans, and interest rates on repayments are normally lower. (Some homeowner loans offer fixed rates for part or all of the repayment term, but most are variable.)
Homeowner loan repayment terms can be up to 35 years, which puts less pressure on borrowers each month than short-term unsecured borrowing.
You don’t need to change your mortgage agreement – great news if you aren’t many years into it and want to avoid early repayment charges. As a result, a homeowner loan is more appropriate for some homeowners than re-mortgaging.
Plus, not having a great credit score doesn’t necessarily prevent you from getting a homeowner loan.
It’s important to be aware that the lender may repossess your home as a last resort if you stop repaying the loan. But as long as you stick to the repayment schedule, it’s safe.
How Long Do They Take to Arrange?
Homeowner loans can often be arranged in as little as one to six weeks.
The lender will want to check your ID, financial status, ownership of your property, its value and your equity. But don’t worry – we’ll guide you every step of the way.
An advantage of asking The Mortgage Shop in Devon to arrange your homeowner loan is that we’ll make it as easy as possible for you. We’ll scour the market for the best products for your needs, discuss the benefits and risks of secured borrowing, and help you to complete your application.
We’d never advise you to get a homeowner loan if we weren’t convinced it was appropriate and affordable for you to do so.
Thinking about getting a Devon homeowner loan? Contact us today for clear, independent advice.
Standard Health Warning & Regulatory Statement
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured against it. All loans subject to status. Ask for a personalised illustration. You may be required to pay a broker fee depending upon the type of mortgage recommended. Registered in England and Wales 3110231 – Registered Office: Sommerville House, 30 Southernhay East, Exeter, Devon EX1 1NS. The Mortgage Shop is a trading name of The Mortgage Shop (Exeter) Limited which is authorised and regulated by the Financial Conduct Authority. FRN 302305 Check that this mortgage will meet your needs if you want to move or sell your home or you want your family to inherit it. If you are in any doubt, seek independent advice.