Secured Loan Articles

A secured loan or second charge is finance borrowed in addition to a pre-existing mortgage. Secured loans are only available to homeowners and work in the same way as a mortgage, with the credit placed against the value of the property. Although there are some similarities between a secured loan and a mortgage, the two products are completely separate. A secured loan is a different product to a further advance on an existing mortgage that a homeowner may have.

There are a large number of secured loan lenders operating within the UK, offering products to suit all circumstances. In the same way as most banks and mortgage lenders products are defined, secured loans fall into three main categories; prime, sub-prime, and non-status or non-conforming. A typical prime applicant for a secured loan would have a clean credit history and high levels of equity in their property. Applicants with bad credit history caused by mortgage arrears, defaults on other finance or CCJs would fall into the sub-prime category. Non-status products are more suited to self-employed applicants wishing to self-certify their income, or those applying for a secured loan against what a lender would define as a non-standard construction property type.

One of the main benefits of secured loans is the fact that they are not linked to the borrowers existing mortgage. By keeping these separate, a secured loan can be taken over a shorter term than the main mortgage account. If an applicant has 40 years left to repay their main mortgage, they may not want to borrow an additional sum and have to pay interest over such a long period of time. Secured loans can be taken over terms from 5 to 25 years. Similarly, if a borrower is currently on a fixed rate for their first charge, they may not want to expose their entire mortgage account to a higher rate by remortgaging, particularly if their credit status has deteriorated. They may have been declined for a further advance on their existing mortgage.

Another advantage of secured loans is the speed at which they can be arranged. Typically, a secured loan can be completed, and funds released to the borrower, within around 17 working days from application. The process for arranging a secured loan is relatively simple. A credit search would be carried out to determine the borrowers' credit status. This would be followed by a land-registry search to ensure that the applicant is the legal owner of the property they are looking to raise finance against. The company lending the secured loan would then require a valuation to be taken out, and also request a history of the mortgage repayments to enable them to calculate equity in the property.

Secured loans do not require the borrower to pay any up-front fees. All of the expenses associated with arranging the finance are absorbed by the broker arranging the finance, who will also provide all of the required legal documentation and advice on the best products available with no obligation for the borrower to proceed. Rates are available from 7.7% APR, and typical rates are currently calculated at around 13% APR.

Secured Loan Articles