Secured loans

Are you looking for a secured loan?

Want to talk to an advisor? Our specialist consultants are always happy to have a chat over the phone.

Also known as Second Charge Loans

Secured Loans

If you own a house, car, or another valuable asset, a secured loan could be a viable option for obtaining the funds you need.

This type of financing is particularly useful for those seeking a larger loan amount, an extended repayment period of over five years, or for individuals who have faced challenges in qualifying for a personal loan. However, it's crucial to be aware that secured loans involve the risk of losing your assets. Therefore, understanding all the details is essential before making a commitment.

What is a Secured Loan?

A Secured Loan, also referred to as a 'Second Charge Loan' or 'Homeowner Loan', is a financing solution that can be taken over a long term like your mortgage , secured against a property that already has an existing mortgage or loan, known as the 'first charge'.

This type of loan is often utilised toto release money from the property without completely refinancing the existing mortgage. This is usually because the existing mortgage may have early repayment charges for coming out of a mortgage deal early.  The additional money that is  released via a secured loan is often used for home improvements, a deposit to buy another property (maybe for investment) and also for consolidating debts.

Key aspects of a second charge loan include:

  • Secured Loan: This loan uses the borrower’s property as collateral. Being a second charge means it is secondary to the existing primary mortgage or loan on the property.
  • Purpose: These loans are commonly used for property purchases, renovations, or developments where quick access to funds is essential. They can also help manage cash flow challenges or finance other business opportunities.
  • Interest Rates: Typically, higher than traditional mortgages due to the associated risks for lenders.
  • Eligibility: Lenders evaluate the borrower’s affordability for the current mortgage and new secured loan payment, creditworthiness of the borrower,  and property value before approving the loan.

A second charge loan can be an effective option for those needing swift access to capital, but it does involve higher costs and risks. It’s important for borrowers to carefully assess their financial circumstances and the loan terms.

Consulting a specialist mortgage broker, such as Cleerly, can provide valuable guidance in navigating these decisions. They will consider a regular remortgage or borrowing more from your current lender first, which is usually the cheaper option, and then refer to their specialist secured loans partner if a second charge should be investigated.

What can Secured Loans be used for?

Second charge loans offer remarkable flexibility and can be arranged swiftly, making them suitable for various needs.

Here are some common applications for these versatile loans:

Property Renovation and Development

  • Renovation projects: Fund renovations or refurbishments with a Secured Loan, enhancing property value before selling or refinancing. This can be a quick way to access the equity in your property without having to do a full remortgage, especially if you have early repayment penalties due to being on a fixed rate.
  • Development projects: Property developers with equity in existing properties can use these loans to finance development projects and acquisitions

 

Debt Consolidation

  • Expensive unsecured debts: One of the most common uses of secured loans is to consolidate debts that have high interest payments and the credit is not reducing quickly as a result. These could typically be credit cards or high-interest personal loans where the debt can be settled quicker via a secured loan.
  • Secured debts: if you have suffered from credit problems in the past your creditors may have put a charge on your property relating to the monies owed from years before. A secured loan can remove these charges by settling the debts which makes a traditional remortgage cheaper and feasible in the near future.

 

Short Term Cash Flow Needs

  • Immediate cash flow: Address urgent financial needs requiring quick access to funds, which traditional mortgages might not provide promptly.

Business Purposes

  • Flexibility for business purposes: Regular remortgage lenders generally do not allow equity release for business purposes, so a second charge can be a quick way to inject funds into a business when High Street lenders cannot help.
  • Business expansion: Use funds to grow your business, acquire new equipment, or invest in new ventures.
  • Working capital: Gain short-term working capital to handle cash flow issues or unexpected expenses.

Investment Opportunities

  • Capturing investment opportunities: Secure immediate capital to invest in undervalued properties or other profitable ventures.

 

Resolving Legal Issues

  • Legal settlements: Use these loans to cover legal fees or extend leases on leasehold property where immediate payment is necessary, and traditional mortgages will not work due to restrictive lending criteria

 

Tax Liabilities

  • Paying taxes: Second charge finance can help pay significant tax bills, avoiding penalties and interest on overdue taxes. A traditional remortgage lender is unlikely to accept this as a valid reason to release equity,

How much can I borrow with a Secured Loan?

The size of the loan you can access largely depends on the value of your asset. If you're using your home as collateral, as is typically the case, you might qualify for a significantly larger loan.

Lenders will assess a range of key factors in determining how much you may be able to borrow:

Property Value and Equity

  • Current Property Value: The property's value, which serves as collateral for the loan, is a key factor. Lenders will perform a valuation to assess this accurately.
  • Existing Mortgage Balance: The remaining balance on your initial mortgage impacts the equity available for a new loan.
  • Loan-to-Value (LTV) Ratio: Most lenders offer second charge loans with a maximum LTV ratio of 75-80% of the property's current value. This includes both the existing mortgage and the new loan. There may be lenders willing to go higher, but they are few in number and the rates and fees will be higher due to increased risk for the lender.

 

Creditworthiness

  • Credit Score: A higher score can secure better loan terms, lower interest rates, and possibly a higher loan amount.
  • Income Verification: Proof of income will influence the maximum loan size, particularly if the lender needs assurance of your capacity to meet interest payments.

Purpose of the Loan

  • Loan Purpose: The intended use of the loan, such as property purchase, renovation, or business expansion, can affect how much lenders are willing to lend.

 

Borrower’s Experience

  • Experience: For development projects, those with experience might secure larger loans compared to newcomers in property development.

 

Exit Strategy

  • Clear and Viable Exit Plan: A strong exit strategy, such as selling the property or refinancing, can enhance the amount you can borrow by reassuring the lender of repayment.

 

Additional Security

  • Other Assets: Offering additional properties or assets as collateral may encourage lenders to increase the loan amount.

Trusted lenders we work with

Metro Bank
Nationwide
Virgin Money
The Mortgage Works
Skipton
Halifax
NatWest
Barclays
Birmingham Midshires
HSBC
Accord
Scottish Widow

Expert Commentary, Simon James, Associate Director

Example of Secured Loan borrowing capacity

If your property is valued at £500,000 and your current mortgage balance is £300,000:

  • Maximum LTV Offered: 75%
  • Maximum Total Borrowing (75% of £500,000): £375,000
  • Existing Mortgage: £300,000
  • Potential Second Charge Loan Amount: £75,000 (£375,000 - £300,000)

 

Expert Commentary, Simon James, Associate Director

What are the benefits and drawbacks of Secured Loans?

Benefits of a Secured Loan

Taking out a Secured Loan offers several benefits:

  • You may qualify for lower interest rates compared to personal loans;
  • Longer loan terms are available, which can make your monthly payments more manageable, though this may result in higher total interest paid over time;
  • You can often borrow larger amounts than with unsecured loans, which typically max out at £25,000;
  • A less-than-perfect credit score might not impede your approval, as the loan is backed by collateral.

Drawbacks of a Secured Loan

  • A significant drawback of a secured loan is the risk of losing your home or car if you're unable to meet your repayment obligations;
  • Associated costs, such as setup fees, can add to the loan's expense relative to other forms of borrowing;
  • While opting for a longer loan term can reduce monthly payments, it also means you'll repay much more than the initial loan amount;
  • Be cautious of early repayment fees, as these can be quite costly and differ from lender to lender if you decide to pay off your loan ahead of schedule.

How to apply for a Secured Loan

Navigating the process of obtaining a Secured Loan involves several important steps, beginning with assessing your financial requirements and finding the right lender, all the way through to completing the application.

Cleerly are specialist brokers with extensive experience in assessing borrowers' suitability for Secured Loans. Contact the Cleerly team on 02394 212912 to find out how we can help and we can connect you with our specialist secured loans partner if a secured loan is the right option for you. In assessing suitability they will:

1. Assess Your Needs and Eligibility

  • Determine the Purpose: Clearly articulate why you need the secured loan, whether for property purchase, debt consolidation, renovation, or business expansion.
  • Check Eligibility: Ensure you fulfil basic criteria, such as affordability and credit profile.

 

2. Evaluate Your Property's Value and Equity

  • Property Valuation: Obtain an updated valuation of your property. Lenders will conduct their own valuation as part of the process.
  • Calculate Equity: Determine the available equity by subtracting the outstanding mortgage balance from the current property value.

 

3. Research Lenders

  • Identify Lenders: Look for lenders specialising in second charge loans, considering interest rates, fees, loan terms, and their reputation.
  • Compare Offers: Use a specialist mortgage broker to weigh different lenders’ offers.

 

4. Consult with a Specialist Broker

  • Professional Advice: Engage a mortgage broker who specialises in second charge loans to help you navigate options, understand terms, and find the best deal.
  • Tailored Solutions: Brokers can offer access to exclusive deals and tailored solutions not available directly from lenders.

 

5. Prepare Documentation

  • Proof of Identity: Provide ID documents, such as a passport or driver’s license.
  • Proof of Income: Submit recent payslips, bank statements, or tax returns to demonstrate your capacity to make interest payments.
  • Existing Mortgage Details: Present information about your current mortgage, including the outstanding balance.
  • Property Information: Include details about the property, its current valuation, and any other secured loans.

 

6. Submit Your Application

  • Application Form: Complete the lender’s application form, ensuring all necessary information and documents are included.
  • Valuation and Legal Checks: The lender will arrange a property valuation and conduct legal checks to confirm there are no issues with placing a second charge on the property.

 

7. Review Loan Offer

  • Loan Terms: Carefully examine the loan offer’s terms, including interest rate, fees, repayment schedule, and any conditions.
  • Legal Advice: Consider seeking independent legal advice to fully understand your loan obligations.

 

8. Accept the Offer and Complete Legal Formalities

  • Sign Agreement: If you agree with the terms, sign the loan agreement.
  • Legal Formalities: The lender’s solicitor will handle the legal work, including registering the second charge on your property.

 

9. Receive Funds

  • Funds Disbursement: Once legal formalities are complete, the lender will release the funds to your designated account.
  • Utilise Funds: Use the funds for their intended purpose, such as property acquisition. renovation or debt consolidation.

 

By following these steps, you can effectively secure a second charge loan tailored to your financial needs.

Contact the Cleerly team for an obligation-free consultation

We're confident we can help you

Need to raise extra money without having to take out a personal loan or remortgage? Whether you’re looking to get the ball rolling on an application or you’re just after some friendly advice, don’t hesitate to give us a call on 02394 212912 or request a call-back.

Are Secured Loans regulated by the FCA?

Regulated Secured Loans

Loans secured against a borrower's primary residence or that of an immediate family member fall under regulation by the Financial Conduct Authority (FCA).

These regulated loans must adhere to FCA guidelines, ensuring borrowers receive clear information about loan terms and costs. They also require lenders to assess the borrower's ability to repay and provide the right to escalate complaints to the Financial Ombudsman Service if issues arise.

 

Unregulated Secured Loans

For loans used for business or investment purposes, such as those secured against buy-to-let or commercial properties, regulation typically does not apply.

These unregulated loans are exempt from stringent FCA compliance. Additionally, loans secured on non-primary residences, such as second homes or investment properties, may not be subject to the FCA's oversight depending on specific circumstances.

Key Differences Between Regulated and Unregulated Loans

  • Consumer Protections: Regulated loans offer more consumer safeguards by mandating lenders adhere to FCA rules, ensuring borrowers comprehend the terms and can afford repayments.
  • Transparency: Regulated loans require lenders to provide detailed and transparent information regarding loan terms, interest rates, fees, and potential risks.
  • Right to Complain: Borrowers of regulated loans have the right to lodge complaints with the Financial Ombudsman Service, adding an extra layer of protection.
  • Application Process: The process for regulated loans is generally more thorough, involving stricter checks on affordability and extensive documentation requirements.

 

By understanding these distinctions, borrowers can make informed decisions about the type of secured loan that best suits their needs.

What are the alternatives to a Secured Loan?

Remortgaging

  • Overview: Remortgaging involves replacing your current mortgage with a new one, possibly with a new lender, allowing you to borrow more if your property's value has risen.
  • Pros: Often offers lower interest rates than secured loans and simplifies repayment by consolidating debt into one payment.
  • Cons: The process can be time-consuming, and early repayment charges on your existing mortgage may apply.

 

Personal Loan

  • Overview: An unsecured loan used for various purposes, such as home improvements or consolidating debt.
  • Pros: No need to use property as security, and the application process is straightforward.
  • Cons: Typically have lower borrowing limits, higher interest rates than secured loans, and shorter repayment terms.

 

HELOC (Home Equity Line of Credit)

  • Overview: A revolving line of credit secured by your home, allowing flexible borrowing up to a set limit.
  • Pros: Flexibility to borrow only what you need, paying interest only on the amount used.
  • Cons: Variable rates can increase costs, and your home is at risk if you default. Also, there are not may providers in the UK who offer this type of credit, so terms may not be as competitive as a secured loan that you take in one lump sum.

 

Further Advance

  • Overview: Approach your existing lender to release more funds based on increased equity in your property.
  • Pros: Likely to be on lower rates than a second charge, with your mortgage staying the same.
  • Cons: May involve fees and limits you to your current lender’s rates, possibly missing better deals elsewhere.

 

Development Finance

  • Overview: A specialised loan for property development, including renovations and new builds.
  • Pros: Can be ailored for development needs, with interest rolled up and paid post-projec  if arranged as a second charge bridging loan.
  • Cons: Usually short-term with higher rates, specific to development projects.

 

Refurbishment Buy-to-Let Mortgage

  • Overview: Suitable for buying a property to rent, combining a second charge and conventional buy-to-let aspects.
  • Pros: Designed for rental properties with interest-only options.
  • Cons: Requires a larger deposit, higher rates than residential mortgages, and limited lender availability.

 

Business Loan

  • Overview: Provides capital for business needs without linking to personal property.
  • Pros: Keeps personal and business finances separate, tailored to business requirements.
  • Cons: May need a personal guarantee, with higher rates and shorter terms.

 

Credit Cards

  • Overview: Suitable for smaller, short-term funding needs.
  • Pros: Quick fund access, no property collateral needed.
  • Cons: High interest rates, unsuitable for large or long-term borrowing.

 

Savings or Investments

  • Overview: Using personal savings or liquidating investments to fund needs without borrowing.
  • Pros: No interest or repayment obligations, immediate fund access.
  • Cons: Reduces savings/investment balance, potential tax implications on withdrawals.

 

Selecting the right alternative to a second charge loan depends on your financial situation, borrowing needs, repayment ability, and risk tolerance.

 

If you have bad credit, you might find it easier to obtain a secured loan than a personal one.

Is it possible to obtain a Secured Loan with a poor credit history?

When you apply for any type of loan, lenders evaluate the likelihood of recovering their money. A low credit score often suggests past difficulties in managing and repaying debt. However, with a secured loan, lenders have the reassurance that they can recover their funds by selling the asset used as collateral. As a result, they might be more flexible with their risk assessment, although they will still require proof of your ability to meet the monthly payments.

Alternatively, you could consider a guarantor loan. In this case, a family member or close friend provides an asset as security for your loan. While they need to have a good credit score, your own credit history isn't as critical for approval.

Secured Loan with a poor credit history

Secured Loan FAQs

The lender will organise a valuation of your home by a chartered surveyor, and it's important to note that you'll usually be responsible for covering this cost, so factor it into your total expenses.

You can pay off a secured loan early, though an early repayment fee might apply. Some lenders allow you to make extra payments up to a certain limit each year, often around 10%. Before making any extra payments, confirm with your lender if an early repayment fee will be charged and the amount involved.

The average time to receive the money in your account is approximately 2-4 weeks.

When you apply for a homeowner loan, the provider will conduct a credit check to confirm your provided details, which appears on your credit file but won't negatively impact it. However, once you're approved for financing and accept the loan, it will be recorded on your credit file, becoming accessible to anyone reviewing your credit history.

The possibility of obtaining a secured loan can differ between lenders, even with a poor credit score. However, having a strong credit score can provide you with more favourable rates, making your loan more affordable.

When relocating, you'll generally need to settle any loan secured against your property. Here are your options:

  • Use the proceeds from selling your home to clear the debt;
  • Pay off the secured loan before listing your house for sale;
  • Consider an unsecured loan to settle your existing secured loan.

Alternatively, you might be able to transfer the secured loan to your new property, though this option isn't available with all lenders - if possible, there may be administrative fees involved, and you might need to go through the loan application process again. It's best to consult with your lender or a specialist broker for specific details.

 

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