A secured personal loan, sometimes known as a secured homeowner loan, allows you to borrow a lump sum of money which is secured against a property.
The property is secured by the lender by way of a ‘second charge’, which ranks behind your main mortgage (which is held on a ‘first charge’ basis). This is a legal arrangement and is registered with the Land Registry. You can use the money for whatever you want (provided it’s not illegal or for commercial gain), but secured loans are commonly used to fund home improvements or large purchases (such as buying a new car), or to consolidate existing debts.
Regular monthly repayments must be made throughout the term of the loan, which can generally be between five and 25 years.
What should I look out for when taking out a secured loan?
There are a number of catches and things you need to understand before you commit yourself to this type of secured loan, including:
- The ‘second charge’ on your property means that if you default on a secured loan, the lender can ultimately take you to court and order a house repossession. The first charge lender gets paid back first, and the second charge lender gets what’s left, up to the value of the outstanding debt.
- Secured loan interest rates are usually variable, which means it’s difficult to budget as the rate could go up and down. If you’ve also got a variable rate mortgage, you might get hit twice if rates go up, so make sure you can afford it.
- Consolidating debt is usually seen as a last resort for homeowners, but it can be a good way to get you out of a hole in the short term. Remember, if you lower your monthly repayments in return for a longer loan period, you’ll end up paying more in the long term.
- The selling and administration of first charge loans is regulated by the Financial Conduct Authority (FCA). Second charge loans are now also regulated by the FCA, but the rules are different than for first charge mortgages. This will be changing in March 2016 when all mortgages and secured loans will be treated the same.
Secured Loan Process:
Stage 1: Due diligence is completed
- Application form
- Equifax report is carried out
- Land registry report is downloaded
- Product sourced for the client
- Application Pack sent out for the clients
- The client has sent the relevant documentation back with supporting documentation
- All the documentation has been assigned to one of the experienced underwriters
- If all of the needed documentation has been received we can move on to stage 3
- If all of the needed documentation hasn’t been returned we will liaise with the client or introducer to obtain
- If required we will send off for consent from the 1st mortgage company (this is only required if the 1st mortgage company have registered their charge with Land registry)
- If required we will send off for a BSQ (building society’s questionnaire) this gives us all the needed information relating to the clients account
- If required we will send off for a redemption figure (this may be required if the mortgage hasn’t pulled through on the Equifax credit report)
- It’s time for the valuation to be instructed
- We will instruct the valuation and the surveyor will liaise directly with the clients to arrange a convenient time and date
- As long as the valuation figure has come in at what was needed to meet with the relevant LTV on the case the pack is ready to be sent off to the lender
- Case has been received by the lenders and will now be worked by one of the lenders underwriters to make sure all is in order for completion
- The lender is happy with the case and will now need to speak with the clients, this is needed as no solicitors are involved throughout the process, and to make sure it is not a fraudulent case etc