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Homeowner Loans - A Guide

How is a homeowner loan different to a mortgage? Find out here.

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By Pete Mugleston   Mortgage Advisor

Last updated: 22nd January 2019 *

We get lots of enquiries from customers who want to know more about homeowner loans. If you’ve applied for a homeowner loan, you may have found it difficult to get approved as some lenders can decline applicants if they have bad credit or have a more complex financial situation, for example.

The good news is that if you have been declined, there may be other options for homeowner loans in the UK.

We have gathered all the key information you need to know here in this guide:

Make an enquiry and one of the experts we work with will be in touch to give you the right advice.

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What is a homeowner loan?

We get lots of enquiries from people about homeowner loans as they can often be confused with mortgages. Questions we often hear include, “What is a home equity loan?” and “Is a home equity loan the same as a homeowner loan?”

Homeowner loans explained

A homeowner loan is a type of debt that is separate from a mortgage. It is sometimes referred to as a secured loan because it is a loan secured against your property and, as such, they are only available to homeowners with equity.

It is usually, though not always, applied for by people who would like to release money (capital) from their property by borrowing more. This is why often, a homeowner loan is referred to as a home equity loan.

If you have a homeowner loan, you still pay off your existing mortgage as this is a separate debt.

How does a homeowner loan work?

When you apply for a homeowner loan, the lender will take the value of your property into consideration and then secure the loan against your home as security. The amount of loan is agreed by you and the lender and will need to be paid back over a set period (usually between 1 and 35 years.)

You will also have to pay interest over the duration of the loan term and some loans may offer flexibility, so if you can afford to repay the debt within a shorter time period, you could pay less interest.

You should always check the terms and conditions of your secured loan agreement though as some lenders penalise customers for early repayments.

How long does it take to get a homeowner loan?

Many property owners find that they need a fast homeowner loan. This could be because they need to repair part of their home or cover an unexpected financial problem such as debt.

Customers in need of a quick homeowner loan often ask us if there are same day homeowner loans. In some cases where the loan to value is low and a valuation isn't required, the money can be released on the same day.

However, usually the loan application process from the consideration period to receiving the funds can take anywhere from three to six weeks depending on your lender. Therefore, the process of a homeowner loan is often much quicker than a mortgage.

How much can you borrow on a secured loan?

The amount of loan you can borrow depends on a range on factors including:

  • Value of your property
  • Your income
  • Your credit record
  • Purpose for the loan
  • Your age

Every lender has different criteria that they use to work out your affordability as well as how much you can borrow but usually you can borrow up to a set percentage of the value of your property.
Each lender will have a maximum loan to value (LTV), which is the amount of money they will lend you depending on the value of your property.
For example, if your home is worth £200,000 and you wanted to borrow £50,000 that would be an LTV ratio of 25%.

Bad credit homeowner loans

We have helped lots of people get homeowner loans with bad credit. Below is a list of potential credit issues you might be faced with as a borrower, where it may be possible to still obtain a secured homeowner loan.

  • Low credit score
  • Late payments
  • Mortgage arrears
  • Defaults
  • CCJs
  • Debt management plans
  • IVA
  • Bankruptcy
  • Repossession

Customers with bad credit can often be seen as a higher risk to homeowner loan lenders and so there can be fewer lenders who are willing to offer loans to them. Thankfully, there are some lenders who specialise in homeowners loans for people with bad credit.

For more information on bad credit homeowner loans, contact us here. Alternatively,  see our bad credit information section here

Does income affect your chances of getting a HomeOwner loan in the UK?

As part of your secured loan application, the lender will assess your ability to repay the loan so if you have a low or fluctuating income you may be perceived as a higher risk.

Therefore if you need a cheap secured homeowner loan, you may be frustrated to learn that low income can result in a higher rate of interest. Your income, if low or unreliable, can also restrict the amount you are able to borrow as well as the choice of lenders.

Homeowner lenders each have varying criteria on what they will and won’t accept as income and they’ll want to know if your income is a set basic wage or salary or whether your income fluctuates. As well as how much you earn in salaries / wages, they will also look at your:

  • Bonuses
  • Overtime
  • Commission
  • Allowances
  • Any other additional incomes including benefits

Some lenders will consider 100% of all of the above listed forms of income when deciding whether you can afford your loan repayment.

Other lenders will only consider 80%, some 50% and certain providers  won’t accept them at all.

Self employed homeowner loans

If you are applying for a secured homeowner loan and are self-employed, most lenders will need proof of three years trading in order to establish your affordability, although there are some who will ask for two, a few one, and a handful who will consider 9 months.

Your accounts must be up to date and paint  an accurate picture of your finances, so it can be helpful to seek advice from a chartered accountant.

Homeowner loans for retired customers

Some secured homeowner loans aren’t available to homeowners in retirement as some lenders have upper age limits and won’t lend to borrowers over 75, whilst with others the maximum age is 85.

There are a small minority of homeowner loan lenders that have no age limit and accept customers in retirement or near retirement, as long as they are confident the customer can repay the debt in their later years.

For more information on lending in later life, visit our section on this here.

First time homeowner loans

If you are a first time buyer and have just bought a property, you may want to get a secured loan for home improvements or to furnish your property. You may find it difficult to get a secured loan as by being a new homeowner, you will most likely own just a small percentage of the property’s equity. This makes you a higher risk so most lenders restrict further borrowing to customers who have owned a property for less than 6 months.

Can I secure my home equity loan against a non-standard property?

Homeowner loan lenders use your property as security so in the unfortunate case that you do not repay your loan, your property can be repossessed. Securing your loan against a non-standard building (e.g. one made from anything besides bricks and mortar) can be difficult as lenders view these properties as harder to re-sell which could make it tough  for them to make their money back to cover your loan.

Because of this, some secured loan lenders have strict lending criteria on buildings including:

  • Listed buildings
  • High rise flats
  • Tin Roof
  • Thatched roof
  • Ex local authority
  • Uninhabitable property
  • Non-standard construction
  • Concrete
  • Flats with balcony access
  • Steel frame
  • Timber frame

For more advice on this, make an enquiry and we’ll refer you to one of the property mortgage experts to give you the right advice. Alternatively, see our non-standard property section here.

Homeowner loans with no mortgage

An unencumbered property is a property that is owned outright with no mortgage or loans secured against it.

It can be harder to get homeowner loan on a property with no mortgage or equity, because typically these are taken out on a second charge mortgage and need to be secured over the top of a first charge mortgage.

There are a handful lenders who may consider a homeowner loan with no mortgage or equity, however there may be other options available to you such as remortgaging which could save you more money overall.

Speak to one of our advisors here for more information on this.

The different uses for a homeowner loan

Some homeowner loan lenders will provide a loan for an array of reasons however others restrict their lending for customers who use the funds for home improvement or debt consolidation.

Debt consolidation

Some customers use their homeowner loan for debt consolidation which can be sometimes be a cheaper alternative if they can find a lender with a lower interest rate than the rate they are currently paying on their debts.

Unfortunately, some lenders limit the loan to value (LTV) when lending to a customer who has accumulated debt because they are seen as a higher risk. Where lenders may consider secured loans up to 95% Loan to value for home improvements, they may limit lending to 85-90% for debt consolidation.

As with any loan, it is important to work out how you can budget and then repay your loan. This is especially important with loans that are secured against your home such as a homeowner loan because if you do not keep up with your payments, your home could be repossessed.

Home improvement

You may want to apply for a homeowner loan in order to carry out some construction work on your property such as an extension or to remodel part of their home. Making improvements to your home such as a loft conversion to create additional room can be cheaper than remortgaging and moving to a bigger property and some home improvements can add value to the property.

However, you should always seek professional advice before applying for any loan to not only avoid overpaying on interest but to find lenders who are more likely to approve you. Contact one of our advisors here for more information on this.

Buy to let homeowner loans

The amount of money that home equity loan lenders will allow you to borrow on a buy to let  differs from lender to lender but most view secured loans on a BTL as more risky which can affect the loan to value (LTV) ratio.

Affordability checks can affect your likelihood of approval as well as the interest rate you’ll pay on your home equity loan. Because of this, it’s important to seek professional advice before making an application. Contact OMA here and we’ll put you in touch with an advisor experienced in Buy to let homeowner loans.

What happens if you can’t pay your homeowner loan back?

A homeowner loan is an additional loan lent on top of your mortgage which is the first legal charge on the property. This means that if you can’t pay your homeowner loan and your property is repossessed, any funds made from the sale of the property will be used to settle your mortgage first.

Your homeowner loan lender has second charge on the property so any funds left over will be used to settle their loan.

For example, if your home is sold for £130,000 and you have a main mortgage of £100,000 and a secured homeowner loan of £30,000, the main mortgage will be paid first and the remaining £30,000 can be used to settle the debt from the homeowner loan.

If the sale of your property is not enough to cover both your mortgage and your homeowner loan, you may have to enter into an IVA or declare bankruptcy.

Alternatives to homeowner loans

There are a number of alternatives to homeowner loans which may be worth considering, and they include...

Homeowner loan vs remortgaging

Homeowner loans

Positives Negatives
Secured loans can be quick to set up Rates on secured loans are usually variable so can move up and down over the loan period.
Some secured loans have no early settlement penalties If you are borrowing to settle debts, some lenders limit the loan to value ratio.

Remortgaging

Positives Negatives
May be able to find a better mortgage deal Could involve legal costs.
Could end up paying a different interest rate on your second mortgage compared to your initial mortgage

0% purchase credit card

If you need money to fund a home improvement, there are some specifically-designed credit cards that won’t charge interest on new purchases for up to two years. If you repay your debt within the stated 0% period then you can avoid paying any interest.

Homeowner loan calculators

If like many others, you want to compare the cheapest homeowner loans online, you might be tempted to use a homeowner loans calculator.

However these also don’t factor in each lender’s varying criteria on bad credit, property type and income, so this can make working out which lender is best for you difficult.

This is where the expert brokers we work with come in. They can give you the right advice and discuss options available to you.

Homeowner loan lenders

Some lenders only offer homeowner loans a well as other forms of loans to existing members. To give you a brief overview of which lenders accept new customers, please see the table below.

Lender Names Who are they available to?
HSBC homeowner loans Homeowner loans are available to both existing customers and new customers to HSBC
Barclays homeowner loan Must have a Barclays current or savings account, mortgage or Barclaycard. The loan cannot be used to pay back a CCJ
Capital One homeowner loans No longer provide homeowner loans
Natwest homeowner loans Must be 18+ and a UK resident with either a Natwest current account (held for 3+ months), credit card or mortgage (held for 6+ months).
Amigo loans homeowner Open to UK citizens (subject to affordability and credit checks.)
Halifax homeowner loans Open to all UK citizens (subject to affordability and credit checks.)
Santander homeowner loans You must be an existing Santander customer to apply for loans above £20,000. Open to UK citizens (subject to affordability and credit checks) for loan under £20,000.
Ocean finance homeowner loans Open to UK citizens (subject to affordability and credit checks.)
Nationwide homeowner loans Just for Nationwide members in the UK. You're a member when you have a current account, mortgage or savings account with HSBC.

To get more detailed comparison of  homeowner loans and for professional advice for the best homeowner loans in the UK for your situation, speak to one of our advisors. They can take you through the various options and provide you with a free homeowner loan quote.

Why you should speak to an expert on homeowner loans

All of the experienced advisors we work with have extensive knowledge about which lenders are more likely to approve your mortgage.

They are all OMA approved and have also undergone a 12 module LIBF accredited training course. This ensures that the advice you receive is clear, informed and helps you get the best possible mortgage deal.

Contact a homeowner loan advisor

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 22nd January 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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