Most clients are familiar with the term ‘mortgage’ and understand that a mortgage product can be used to purchase a property, or to re-mortgage and replace an existing product that is expiring, or to raise additional funds to carry out home improvements, purchase another property, or for any legal reason that the lender will consider. The mortgage market has been in a constant and volatile change as a result of the Global Pandemic, and the impact that this has had on employment and the housing market in general. Property values have risen way above expectations as a result of demand and the current housing shortage.
What is a Secured Loan?
A Secured Loan is a facility that is available to clients that currently own a property that has a mortgage in place, with the secured loan lender taking a second charge on the property. It is possible to have more than one secured loan in place, subject to the agreement of the existing lenders. Many clients who are looking to arrange a secured loan may have approached their existing mortgage provider, and for a particular reason, or any number of reasons, their existing mortgage lender was not prepared to advance additional funds. At this point, a re-mortgage could be considered but clients would have to accept that they might have to consider interest rates and terms that may be in excess of those they currently enjoy, in addition to the additional time frame and legal works that have to be carried out to ensure a satisfactory completion on a re-mortgage.
What are the main advantages of a Secured Loan over a Mortgage?
There are several reasons why a secured loan may be a much better product for a client to consider when looking to raise additional funds using property as security.
- Speed of application to release of funds
- Acceptance of a bad credit profile
- Generous rules on affordability
- Funds raised may be used for any legal purpose
However, what must be appreciated is that when clients are considering a secured loan, the security provided to the lender is their property, and should the client default on the repayment of the loan, the lender has the right to apply for a repossession order via the County Court. This position must be fully understood when applying for the secured loan.
Your Credit Profile?
In today’s very challenging market a great number of clients are struggling to keep their finances under control, and many have unfortunately made late payments on existing credit arrangements, may have gone into default, and in some cases have had County Court Judgements registered against them. Going into arrears on an existing mortgage is becoming a real problem. This is where a Secured Loan can be a real life saver because some Secured Loan product providers will accept a Bad Credit profile that most first charge mortgage providers would not even consider. A Bad Credit profile will of course have an impact on the terms of any loan that clients may be eligible to apply for, but if we are able to offer a facility that allows clients to consolidate their debts into one affordable loan, this will have a very positive impact on their credit rating. This would mean that in the foreseeable future they should be able to re-mortgage and consolidate all their loans into one mortgage on more attractive terms.
With our experience and knowledge of the mortgage marketplace, together with access to the whole of the market, we can guide clients through available products to find the one that fits their credit profile whilst advising when they would be in a position to proceed with an application and confirm the associated costs and the monthly repayments.
Although the rules of affordability are about to change (July 2022), every lender has their own rules on affordability which underwriters follow to make sure the application is affordable.
The very positive news for clients is that the affordability rules for secured loans are far more flexible than they are for a normal mortgage application, which would always be helpful if the clients need a stretch in income multipliers to allow the requested level of borrowing.
Another major factor, apart from the level of income, expenditure, and credit profile, is the amount of equity left in the property if the loan is agreed. Underwriters will always be more positive in their decision to lend at the required level if the total amount of borrowing falls below 75% loan to value (LTV). The lower the loan to value, the more confident any underwriter would be in agreeing the application.
What is the main difference between a Mortgage and a Secured Loan?
A mortgage product will always have first charge on your property; therefore the terms of the product will be more attractive in terms of the rate of interest being charged and the fees being charged by the lender than on a secured loan.
There are specialist Mortgage lenders who will accept a level of Bad Credit, again with the loan to value playing a big part in how attractive the terms of the mortgage and associated costs are.
However, it must again be made very clear that with a secured loan the underwriting terms will always be more flexible regarding Bad Credit, with lenders accepting many more purposes for what the actual funds are being raised for.
Where the secured loan wins is on the speed that it takes to get the facility agreed and the money being released directly into your bank account.
A first charge mortgage will always take a little longer to get agreed than a secured loan and it does involve an elongated legal process that could take around three months from the start of the process to completion.
When applying for either a first charge mortgage or a secured loan, clients must provide all or some of the following:
- Proof of identity (passport, driving licence, birth certificate).
- Proof of address (bank statement, credit card statement, being on the electoral register, landline telephone bills, council tax or water bills)
- Proof of income (payslips, P60, accounts or SA302’s, bank statements)
How we can help
With our knowledge and experience in this very complex market we are constantly reviewing what products lenders are offering. We take a great pride in being able to help clients and offer attractive terms. We will do all we can to make the experience of applying for either a first charge mortgage, or a secured loan, a painless one.
Clients should call us now, on 0800 802 1003 where our friendly advisors will put a smile on their faces.