If you’re looking for a secured or homeowner loan there are many questions that you could have. Over the years we’ve noticed a number of questions arising regularly, so in order to help we’ve put together this FAQ regarding secured and homeowner loans.
A secured loan is simply a loan secured on an asset, in this context the asset would be property or land. Typically they are used for home improvements, debt consolidation or business purposes. They are similar to a normal mortgage in that if you fail to repay the loan there is a possibility the lender could repossess the land or property the loan is secured against.
A normal mortgage (often referred to as a first charge) is needed in order to obtain a secured loan (often referred to as a second charge), if there is no 1st charge in place there can’t be a 2nd charge. If no main mortgage is in place, a normal 1st charge mortgage would be needed – which is still secured against the property or land.
As mentioned above, a first charge is typically your everyday mortgage such as you can obtain from a high street lender. A 2nd charge (commonly termed as a secured or homeowner loan) sits behind the 1st charge, this means that if you sell the property, remortgage or have the property repossessed the 1st charge lender has priority over any funds raised when you sell the property – in reality however, both are secured and both should be equally important.
There are differences in how a secured loan is processed. From the client’s perspective the main differences could be that, if they chose to add fees to the advance on completion there there would not normally be any upfront fees to cover such things as; valuation, references, searches or any legal costs – These would typically be covered by the broker and recouped on completion , whereas with a normal 1st charge mortgage there may be valuation and legal fees to pay up front even if any broker fees are paid on completion.
The simple answer is yes credit is a factor lenders look at when considering applications. Depending on your credit you could be restricted on the loan to value available. The rates and charges may increase and you may have to provide more detailed information than a lender would normally require.
If the interest rate increases, it stands to reason that the payments could increase – which may affect affordability. The way a lender works out affordability for secured loans can be found here.
The process of applying for a secured loan starts with placing an enquiry with a suitably qualified and regulated broker or lender, who will then take all relevant information to help obtain a decision in principle. Once this is done you should be provided with a quotation, detailing costs and monthly payments.
Along with checking your credit file they’ll also check your affordability. Not all lenders work out affordability the same way, but if you’re self employed they’ll usually ask for wage slips. For a self employed homeowner loan you may need to provide tax returns, an accountant’s reference or your SA302.
Once all relevant checks have been carried out and the application form has been submitted to the lender, they will issue what’s called a binding offer. A binding offer ‘binds’ the lender to the offer so once this has been issued the lender can not withdraw the offer unless something relevant to the application changes or the offer expires.
The issuing of a binding offer initiates a consideration period lasting 7 days during which time we cannot contact you – If you decide you don’t want to wait and you want to complete quickly, you can forgo the consideration period by returning the offer straight away.
How long could a secured loan application take?
The time taken from start to finish could be between 3 to 4 weeks. It stands to reason that the quicker any documents are returned, the quicker any loan should complete.