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Secured loans, also referred to as second charge mortgages or homeowner loans, allow you to borrow large amounts of money over longer repayment terms. The loan will be ‘secured’ against the value of your home, and they can often be used as an alternative to re-mortgaging.
A secured loan can be used for almost any reasonable and legal purpose.
Common uses include:
The following property types can be used as security:
To qualify for a secured loan you must meet the following lending criteria:
The set up costs can vary between lenders but are likely to be made up of a combination of the following:
An administration fee is normally charged by the lender to cover the costs of setting up and organising your secured loan. You should be given the option whether to pay this fee upfront, or have it added to the loan facility.
This may also be referred to as an arrangement fee or a booking fee and is generally a standard upfront cost charged by most lenders when you apply for a secured loan. Like the admin fee, you should have the option to add it to the loan facility.
The security property will need to have an up-to-date valuation to ensure it is suitable as security for the loan. This will be carried out by a professional surveyor, normally commissioned by the lender. Depending on the property and the circumstances, this may be a full valuation, drive by valuation or a desktop valuation.
A fee charged by the broker for arranging the loan facility.
The secured loan broker fee charged by KIS Finance includes all the above fees, and is only charged if the loan is taken out (paid out). The broker fee is then added to the loan facility and detailed in your loan agreement.
On average, secured loans take about 1 to 2 weeks to arrange – but some can be quicker depending on the circumstances.
The chances of being accepted for a secured loan are often higher than for a personal or unsecured loan. As long as you have sufficient equity in a property, a regular income and no major problems with your credit history, you are likely to be accepted. This is because secured loans are a much safer option for lenders as repayment is guaranteed given the security provided.
Secured loans are attached to an asset – usually a property. As the lender has something to repossess if you default on the repayments, secured loans are considered low risk.
Unsecured loans, like a credit cards or personal loans, are not attached to an asset so the lender has nothing to claim in the event of default. Because of this, unsecured loans are considered high risk and you will generally need a very good credit history and score to obtain an unsecured loan.
To reflect the safer lending, secured loans will generally offer higher loan amounts and lower interest rates than unsecured loans.
A secured loan can be used for any reasonable and legal purpose.
Because of the security provided, we are able to offer secured loans to people with arrears, defaults and county court judgements.
Yes, you can pay off your secured loan before the end of the term, but you may be a charged an early redemption penalty.
The consequences of missing repayments on a secured loan can vary, but ultimately, the lender has a legal right to take possession of your home to take back what they are owed. As soon as you realise that you may have even the slightest difficultly in making your repayments, you should contact the lender to see what options there are.
Defaulting on your secured loan repayments will also have a negative effect on your credit score and may make it more difficult to obtain credit in the future.
Our loans can be secured on your residential home and also buy-to-let properties.
The loan-to-value is the maximum amount that a lender will consider lending, as a percentage of the value of the property you are securing the loan on.
If you require a loan of £60,000 secured on a property valued at £100,000 (assuming there is no other finance secured on the property), then the loan as a percentage of the property’s value would be 60% - this is the loan-to-value ratio.
Example One: If you want to buy a property with a value of £300,000 and the mortgage lender offers a maximum loan of a 85% LTV, then the maximum you could borrow against the property would be £255,000. This means you would need a deposit of £45,000.
Example Two: If you own a property valued at £500,000 and have £200,000 left to pay on the mortgage, then you have equity of £300,000.
Then you want a secured loan and want to know the maximum amount you can borrow.
If the lender is operating at a maximum of 75% LTV, then the total amount allowed to be secured against the property would be £375,000. The mortgage is already taking up £200,000 of this, so the maximum second charge secured loan you could get would be £175,000.
Equity is the percentage of your property that is free of a mortgage or any other loans – in other words, the percentage owned by you.
For example: If you own a property worth £300,000 and you have an outstanding mortgage balance of £150,000 and a secured loan of £20,000, your equity is £130,000.
Calculation: £300,000 – (£150,000 + £20,000) = £130,000
Certain factors can either increase or decrease the amount of equity you have in a property.
Factors that increase equity: Paying off debts secured against the property, an increase in the market value of the property (through general market increases or by making improvements to the property).
Factors that decrease equity: Securing a new loan against the property or a fall in the market value of the property.
Ultimately a secured loan won’t affect your current mortgage, however, the second charge lender will often need permission from the mortgage lender before they can place a charge on the property.
This will be down to the lender’s discretion at the time. It will depend on the value of the property and you ability to meet the lending criteria.
A secured loan can positively or negatively affect your credit score, depending on how you keep up with the repayments.
Yes, as long as there is enough equity in your share of the property.
You must be at least 18 years of age and a homeowner.
You can take out a secured loan at any age as long as it can be fully repaid by your 80th birthday.
A secured loan term can be anywhere from 3 to 25 years.
As the loan is secured against your property, there is some risk involved. Even though it is a last resort, your home could be repossessed if you don’t keep up the repayments. So, as long as you make all the repayments on time, there should be no problem.
There is technically no limit to how many secured loans you can have, as long as you’re in a strong financial position and you handle your debts responsibly. However, just because you can take out more than one secured loan, that doesn’t necessarily mean you should. If you already have one or more secured loans and you are considering applying for another, speak to an independent advisor first to make sure the borrowing is responsible and that you won’t be out of depth.
It is possible to take out a secured loan on an interest-only basis. This means repayments throughout the term will be made up of just interest, leaving the capital to be repaid via another method at the end of the term. Because you are not repaying any capital, monthly repayments will be much smaller with an interest-only secured loan.
Like a mortgage, most secured loans will have a fixed-rate introductory period of between two and five years, after which you will be charged the lender’s standard variable rate.
The interest rate will stay fixed for the duration of the introductory period, meaning your monthly repayments will remain the same.
After this period has ended, the interest rate will revert to the lender’s variable rate which means your repayments could go up or down.
Lenders’ standard variable rates often fall in line with the base rate set by the Bank of England. This means that the interest rate charged on your loan could fluctuate throughout the term without any warning. These rate changes could be up or down, so it is important that you consider this when you are assessing affordability.
If you want to repay the loan in full before the term has ended, you may be charged a penalty fee as the lender will be losing out on future interest payments.
There are a number of benefits that a secured loan can provide:
As you are providing security, you can normally borrow a much higher amount than you would be able to with an unsecured or personal loan.
With the ability to borrow for up to 25 years, the cost is spread over a long period of time, making the monthly loan repayments more manageable and affordable.
Interest rates on a secured loan will usually be much lower than those on an unsecured or personal loan as security is provided and re-payment is guaranteed.
Taking out a secured loan may be a cheaper way of releasing funds from your property than re-mortgaging. This is because you may be tied into your mortgage product and have expensive exit fees – a secured loan allows you to keep this in place but release further money.
If you have adverse credit, you may still qualify for a secured loan as you are providing an asset as security.
You can use a secured loan for any reasonable and legal purpose.
Although secured loans offer a lot of benefits and a great deal of flexibility, there is the risk of losing your home if regular payments are not maintained.
Secured loans can provide a more suitable and flexible alternative to re-mortgaging.
Here are some of the reasons why:
The rates and various fees associated with re-mortgaging can be highly expensive compared to the cost of setting up a secured loan.
If you are already on a very good deal with your current mortgage lender, you may not want to change this. A secured loan will allow you to keep your current mortgage but still release further funds from your property.
Secured loan terms start from just three years.
A lot of mortgage lenders will charge a penalty fee if you want to want to re-mortgage and exit the term early. By taking out a secured loan instead, your current mortgage will remain in place so you will avoid these additional costs.
Last updated: 10 June 2021 | © KIS Bridging Loans 2020
