Interest-only mortgages, secured against an asset can be a useful financial solution for a number of circumstances in order to keep the monthly repayments down, however, as with many financial decisions, there is a range of factors to consider.

This article will explore the differences between secured and unsecured loans, the advantages and disadvantages of interest only secured loans, typically how much can be borrowed, the lending criteria and the application process.

What are the Differences between Secured and Unsecured Loans?

Secured Loans

A secured loan is a type of borrowing that, during the application process details of an asset are provided as security to the lender such as property, equipment or land.

The asset acts as collateral for the lender and in turn reduces the risks involved, that in the event of the borrower defaulting on the agreement, the lender could repossess the asset.

Secured loans often have more favourable loan terms than unsecured loans as the lender has some level of protection should the borrower’s circumstances change and can no longer make the repayments.

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Unsecured Loans

Unsecured loans are where an offer to lend is solely based on the personal circumstances of an applicant and therefore the debt is not associated with an asset. Examples of unsecured loans are personal loans, credit cards or bank overdrafts.

Unsecured loans can be useful in certain circumstances however the loan values available are usually capped and therefore are not often used for big projects or purchases.

In addition, the interest rates are usually higher than secured loans, due to the risks to the lender.

Related quick help guides: 

• Secured loans brokers.
• Secured loans for pensioners.
• Secured loans for self employed.
• Interest only secured loans.

Advantages and Disadvantages of Interest only Secured Loans

Now that we have distinguished between secured and unsecured types of lending, let’s focus more on the advantages and disadvantages of interest only secured loans.

Firstly, let’s clarify what an interest-only secured loan is. An interest-only secured mortgage is a financial product that enables borrowing however the mortgage holder is only required to pay the interest due to the loan each month, during an agreed term. However, at the end of the mortgage term, the capital amount borrowed remains outstanding.

Advantages of Interest-Only Secured Loans 

• Lower Repayments – Interest-only mortgage repayments are cheaper than those on a standard, repayment mortgage however it is worth bearing in mind that once the mortgage term is concluded, the capital loan is still due and therefore a strategy to repay this will still be required.
• Lower interest compared with unsecured loans – Typically lower interest rates are applicable to secured loans due to the linked asset.
• Longer repayment terms – Usually secured loans offer longer repayment terms than unsecured loans that are often capped at seven years.

Disadvantages of Interest-Only Secured Loans

• Capital remains outstanding – The main downside of interest-only lending is that the capital must be repaid at the end of the mortgage term. Therefore, a repayment strategy must be in place and agreed upon with the lender before taking out the loan.
• Interest-only loans can work out expensive – As the capital is not being reduced during the term of the loan the level of interest charged will not decrease either therefore more interest is paid over the term compared with repayment mortgages.
• Riskier – As a separate exit strategy is required with interest-only mortgages, the repayment vehicle such as investments or pension funds could act in a different way to the plan therefore there may not be enough of a fund to pay off the capital when needed.

Why would you apply for an interest-only secured loan?

Typically an interest-only secured loan is attained by those looking to renovate their home. For example, upgrading an old kitchen, in which circumstance you can release some equity from your property to fund the project rather than waiting to save up enough cash.

Another popular reason for an interest-only secured loan is to consolidate debts, for example, consolidating multiple credit cards and loans into a single monthly repayment. This often allows people with considerable debts to secure a lower interest rate and lower payments over a longer-term, allowing them to regain control over their finances.

Helpful guides: 

• Can I get a secured loan on a buy to let property? 
• Secured business loans.
• Homeowner loans with bad credit.

How much can you borrow? 

As with standard mortgages, the amount that an applicant will be offered will vary depending on the personal circumstances of the applicant, the equity available within the property and the lender’s loan to value criteria.

Minimum equity requirement 

The equity within a property is the difference between the property value and the outstanding mortgage balance. Some lenders will have a minimum equity requirement as eligibility criteria for interest-only mortgages, often of £150,000 for first charge loans.

Loan to value (LTV) criteria 

As well as minimum equity requirements, lenders usually have a loan to value (LTV) criteria too. For instance, if a lender has an LTV of 60% and your property is valued at £100,000 with a balance of £50,000 owed from your first mortgage, the most you can borrow would be £25,000.

The majority of mortgage lenders have a maximum LTV of around 50%, while some can go as high as 90%. Feel free to get in touch to talk to one of our advisers today, who will be able to offer you help and advice.

Can I Switch from a Standard Mortgage to an Interest Only Mortgage?

One way of obtaining an interest-only mortgage is to enquire about switching your financial product with your current lender.

Bear in mind that your lender does not have to agree to switch products and even if they do, the lender may not offer the most competitive rates or terms, however, this could be a short-term solution depending on the circumstances.

Another matter to be aware of is that switching mortgage products may mean that any early redemption penalties or other similar fees are due.

Therefore, depending on the personal circumstances of the applicant, it may be worth seeking expert assistance to explore the wider mortgage market in order to obtain the most competitive mortgage solution.

Interest Only Second Mortgage vs Remortgage?

Instead of a second mortgage, you may have considered remortgaging your property too, so what should you do? 

It’s always worth investigating whether a remortgage maybe your best option, however, there are some scenarios where a second charge mortgage will make more sense. 

If you currently have a fixed or tracker rate on your first mortgage, then it may not be financially advantageous to break the contract and incur penalty fees in order to pursue a remortgage deal.

To determine this, it’s a good idea to compare the fees of breaking your first mortgage contract and the fees associated with securing a second mortgage. 

Regardless if you have a good mortgage deal, you may not want to refinance at this stage. 

Even so, you may be unable to refinance your first mortgage due to other reasons, such as affordability issues, while a loan provider may consider you more suitable. 

Another factor is if you do not wish to change your first mortgage repayment plans e.g. extending the term and may wish to take any further financing out on different repayment terms. 

The reality is that there are many different things to consider. Mortgage advisors are best placed to be able to advise the most cost-effective and appropriate approach in specific circumstances and therefore if you are considering whether to obtain a second mortgage or to re-mortgage, it would be highly recommended to book a consultation with one of our expert mortgage advisers today.

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Income and affordability

As with all types of finance, lenders will assess your level of income and expenditures and determine if you can afford to make the monthly repayments of a second charge mortgage.

As stated, lenders tend to be more flexible when assessing applications for a second charge mortgage.

Here are the different forms of income that are usually accepted:

• Fixed salary full-time employment income
• Varied/commission-based full-time employment income
• Part-time employment income
• Self-employed income (net profit/dividends)
• Pension income
• Temporary/freelance contract work (value of contract / daily rate)
• Investment income (rent/trust monies)
• Maintenance payments
• Certain government benefit payments

What happens at the end of the interest-only second charge mortgage term?

After you have completed the payments on the interest portion of the loan and have come to the end of the term, the next stage is to repay the original capital amount. 

At the point of agreeing on your original loan, you should have come to an agreed repayment method with your lender. 

These are some of the most common repayment vehicles offered by lenders: 

• ISAs to repay an interest only secured loan
• Lump sum (tax free) from a pension plan 
• Endowment policies to repay the secured loan 
• Sale of the property to repay an interest-only secured loan
• Sale of another property owned by yourself to repay an interest only secured loan
• Family inheritance or trust fund to repay an interest only secured loan

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Interest only secured loans and bad credit

There’s no denying that poor credit history can impact your eligibility when applying for a loan, however, it depends on when the issue occurred and the type of issue.

If you have a poor credit history you may also be interested in reading our guide on instalment loans for bad credit.

Regardless, even if you have poor credit, it may be possible to borrow money from a specialist lender that accepts applications from individuals with poor credit.

There are loan providers that do offer loans to individuals in the following scenarios:

• Late payments
• Defaults
• CCJs
• Mortgage arrears
• Debt management plans
• With IVAs
• After a Bankruptcy
• After a Repossession

If any of the above apply to you, the first thing to do is to acquire a current credit report to see exactly what it records. Once you have a copy, you can call one of our advisers who would be happy to discuss your options and help you progress in your application.

Read our complete guide on how do secured loans work? 

Interest-Only Secured Loans Summary

As with any big financial decision, research and consideration of all of the factors concerned are needed, including a comparison of costs between various options.

Our specialised team of mortgage experts can provide guidance no matter what stage of the landlord journey you are at – either just starting out, or if you have plenty of rental experience however due to a change of circumstances, you require a tweak to your financial matters. Please get in touch to book a friendly, no-obligation consultation.

Give Mortgageable a call today at 03330 90 60 30 or contact us to speak to one of our friendly advisors.

Further reading:

• £20,000 loans with bad credit.
• Instalment loans for bad credit.
• £10,000 loans for bad credit.

Being self-employed can bring many benefits such as independence, flexibility, a self-designed career path in an industry of choice or where the passion lies, which is often what people dream of as per the famous saying ‘choose a job you love and you will never work a day in your life!

However, being self-employed can also carry negative connotations such as the perception of inconsistent income, and therefore obtaining a loan when self-employed can bring additional hurdles, especially should a self-employed person not have accounted for many years or at all.

Lenders, especially those found on the high street often deem self-employed applicants as higher risk and therefore obtaining loans can be trickier.

Often even if loan offers are achieved, the terms are usually not as favourable as an employed applicant may be offered.

However, over recent years the financial market has been diversifying and is also more understanding that each case is unique, with every borrower having different requirements and backgrounds.

Therefore, should you be looking for a self-employed loan for a range of purposes such as investing in extra equipment or expanding your business, it would be worth exploring the market to find the best interest rate and terms available.

In this guide, we will examine the financial options that self-employed people may have when looking to borrow money for their business.

What are self-employed loans?

A loan for a self-employed person is a method of borrowing money for a range of purposes. The loan can either be secured against an asset such as property, or unsecured, based solely on the credit history of the person and associated business.

Typically, secured loans will be offered with lower interest rates due to the decreased risk to the lender, as an asset is linked to the loan as collateral.

Secure self-employed loans are typically used to fund business developments whereas personal loans are usually only available for personal uses.

Repayment periods can vary depending on a range of factors as set by the lender and type of financial product, however, they can be either short term loans, between 1-5 years duration, or over much longer periods of up to 30 years, suitable for larger projects or investments.

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How do self-employed loans work? 

Loans for the self-employed are available as unsecured or secured payments. A secured loan means that you guarantee the loan repayments with your assets e.g. property, while unsecured loans do not involve your assets.

An unsecured loan is typically more costly due to higher interest rates.

A self-employed loan can be a long or short term solution, it all depends on the amount you want to borrow and your credit rating.

Related quick help guides: 

• Secured loans brokers.
• Secured loans for pensioners.
• Secured loans for self employed.
• Interest only secured loans.
• Can I get a secured loan on a buy to let property? 
• Secured business loans.

Short term loans can aid cash flow for example, whereas the longer-term loans would be useful to spread the cost of more costly business purchases.

As with any borrowing, the offer of a loan will be based on criteria set by the lender which could include a review of personal credit history as well as how long the business has been established and trading.

One consideration with any borrowing includes the consequences should the situation arise where repayments cannot meet. In which case, the business or linked asset (if secured) could be at risk from legal action and ultimately possession by the lender.

As already briefly mentioned, typically a high street lender would not usually offer competitive secured homeowner loans to self-employed people, however when they do, the interest rates may not be the most competitive, therefore specialised lenders are often approached to explore the wider market for the best offers.

Applying for a self-employed loan

The application process for borrowing money is often similar no matter the type of financial product and purpose. Typically, the process will initially require gathering the relevant information to be submitted and reviewed by the potential lender.

What do I need to apply for a self-employed loan?

• Proof of an applicant’s full name and personal address details covering the past 3 years
• Company information including the type of industry it operates within and legal entity status
• Company tax returns (SA302)
• Business bank statements
• Evidence of any income sources, such as rental income for landlords

As with any borrowing, it is highly recommended that plenty of research is undertaken before making an application and committing to a financial product, and therefore by approaching a broker, all options can be extensively explored to find the most suitable product for the applicant’s needs, along with the best terms.

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Lending Criteria for Self-employed loans

Each lender will have its own loan eligibility criteria for approving self-employed loans. Typically, this will include:

• The credit score of the applicant
• The creditworthiness of the business
• Income and affordability – Proof of the businesses’ income sources and typical monthly expenses will be required
• Security- The amount of property equity or the total value of other assets put forward as colleterial for a secured loan

Frequently asked questions about self-employed loans

Here are some of the most common questions received about self-employed loans:

How much can you borrow?

Mortgageable can help you access loans from between £3,000 to £600,000.

What are the repayment terms? 

This can vary but you may be able to choose from 1 all the way up to 30 years.

Read our complete guide on how do secured loans work? 

Can a self-employed person obtain a secured loan without proof of income?

Typically, as part of the application process, proof of income is required, however, if you are newly self-employed, or do not have accounting records covering a sufficient period to prove income, there are other methods that lenders can use to review an application.

Lenders will usually prioritise reviewing the overall credit score of an applicant during the underwriting process, and therefore as long as the applicants’ credit score is sufficient, there will often be options of borrowing even if proof of income is not available.

However, there will be fewer lenders willing to offer loans to applicants relying solely on a credit score and therefore it is likely that higher interest rates will be applicable on any loan offers.

Secured loans without proof of income again will be less commonly available, however providing an asset as security, reduces the risk to the lender and therefore will likely provide more favourable loan terms.

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Secured loans for self employed summary

Lenders these days appreciate that every applicant is unique however, by using a broker an applicant can benefit from receiving inside market knowledge that can be very helpful, including the success rates of similar cases.

As with any financial decision, it is highly recommended that independent financial advice is sought before committing, to ensure that all terms are fully understood.

Independent brokers will also have access to the whole of the market, rather than just high street lenders which will often reveal a range of options and competitive prices.

However, remember that all secured loans will have consequences for owned assets if the repayments are not kept up.

Give Mortgageable a call today at 03330 90 60 30 or contact us to speak to one of our friendly advisors.

Further reading:

• £20,000 loans with bad credit.
• Instalment loans for bad credit.
• £10,000 loans for bad credit.

By accessing a business loan, additional finances can be obtained to enable a business owner to expand their business operations or secure an asset.

Business owners will find a range of financial products available on the market, however, the value and terms available will likely depend on the circumstances of the loan applicant as well as the linked asset.

In this guide, we will explore secured business loans in further detail including reviewing the benefits of obtaining secured finance as well as looking at the application process.

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What is a secured business loan?

A secured business loan is a method of borrowing capital finance by providing details of an asset to be used as security to the lender.

Should a business owner have a commercial asset to secure lending against such as a tangible asset like property, machinery, vehicles, equipment, land or commercial or personal assets, they may be able to access a high-value business loan of up to £2 million.

The asset provides security and in turn, reduces the risk to the lender, therefore depending on the value of the asset, can enable more favourable loan terms.

However, business owners should be aware that should an unforeseen event take place which impacts the ability of a business owner to keep up the loan repayments, there will likely be repossession consequences of the asset linked to the loan.

Related quick help guides: 

• Secured loans brokers.
• Secured loans for pensioners.
• Secured loans for self employed.
• Interest only secured loans.

Benefits of secured business loans

The process of securing a loan against an owned asset will often provide a number of advantages to the business borrower such as:

• Enabling larger loan values – As discussed, by securing the borrowing against an asset, the lender reduces their risk and therefore may be willing to lend higher values.
• Offering longer repayment terms – Typically, secured lending will enable longer loan terms, which can reduce the value of monthly loan repayments and enable business owners to budget over a longer period of time, sometimes up to ten years.
• Lower interest rates – Secured loans typically have lower interest rates applicable versus unsecured loans, and therefore can keep the value of monthly loan repayments lower. Commonly, the interest payable on a secured business loan is fixed throughout the duration of the loan, which can aid the cash flow of a business as the flat repayments are known as consistent.
• Enabling even business owners with bad credit records – Secured loans can even be suitable for business owners with a poor credit history.

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If you have a poor credit history you may also be interested in reading our guide on instalment loans for bad credit.

How do secured business loans in the UK work?

As with any financial product application, there will be an application process, followed by the proposed lender analysing the application. The process of applying for a secured business loan can be similar to applying for a mortgage and therefore documents will need to be made available to confirm identity and business income.

Before making a secured business loan application, in addition to finding copies of the necessary documents, a business owner should consider the following elements:

• Deciding which asset to commit to the secured lending.
• Select an ideal total amount to borrow.
• Choose a loan term.

As already discussed, an application for a secured business loan will be linked to an asset and therefore during the application process, a valuation of the said asset will need to take place.

Once these initial critical elements have been decided, the market can be researched to find a suitable lender and financial product, at the most favourable terms.

The loan value offered, and terms will vary depending on the circumstances of the business owner, the business and the asset offered as collateral. However, as a rough guide, it is common for lenders to offer a loan for up to 100% of the asset value secured to the lending.

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How much can I get? 

The amount you can borrow will depend entirely on the value of the asset you put down, but the majority of lenders will offer 100% of the value of the asset. For example, if your property is worth £200,000, you will usually be able to acquire a secured business loan of £200,000.

Helpful guides: 

• Can I get a secured loan on a buy to let property? 
• Secured business loans.
• Homeowner loans with bad credit.

Will my business qualify for a secured business loan?

Typically, the criteria to obtain a business loan is as follows:

• Be a UK registered business either as; a limited company, a limited liability partnership or as a sole trader.
• Be based within the UK.
• The business must have been trading for a least three months before the application is made.

If the business owner applicant operates as a limited company or limited liability partnership, they may be required to supply a personal guarantee as well as the asset for security. In addition, some lenders may also require a fully detailed business plan as part of the application process.

It is highly recommended that a business owner approaches a financial broker to assist with the application process for a business loan, as well as exploring the market to find the most suited financial product, at the most favourable rates.

What types of collateral can be used to secure against the loan?

The majority of lenders will consider a range of different tangible and intangible business assets to secure the loan against. Some of the most commonly used assets include the following:

• Personal assets
• Commercial assets
• Vehicles and machinery

Certain lenders will also accept a pool of different assets, for example, a property, a vehicle and a business to put down for a secured business loan.

Read our complete guide on how do secured loans work? 

Can I obtain a secured business loan against my house?

Should an existing mortgage be in place on an asset that a business would like to use as collateral against a new business loan, it is still possible to proceed. In such circumstances, the lender may register a legal or equitable charge on the asset. The differences between these two charges are a follow:

• Legal Charge – This type of charge grants the lender the legal power of sale of the linked asset should the loan repayments not be maintained. It is worth noting that consent may be required from any existing lenders against the asset, such as a mortgage provider and therefore there can be some delay in the process for the lender to recoup funds.

• Equitable Charge – It is commonplace for business loan lenders to opt to register an equitable charge against an asset as security as part of the loan process.

An equitable charge does not provide a lender with the power of sale over an asset, however, should there be repayment issues, the lender can seek approval for the charge to be granted and then the funds can be released very promptly, sometimes in a matter of hours.

Although an equitable charge does not provide a power to force the sale of the asset, it also does not require consent from any other lenders involved and therefore can be a much quicker process.

Are my assets at risk?

Yes. The asset you use to secure the loan may be lost if you fail to meet the repayment terms outlined in your lender’s contract. The lender will then typically sell the asset to reclaim the remaining debt.

What if I don’t have any business assets?

If you don’t own any assets or lack what’s required for a secured business loan, you can explore alternatives such as an unsecured business loan.

Secured Business Loans Summary

Secured business lending can open up an array of opportunities to business owners, whilst providing a fixed cost repayment plan. As we have discussed, this type of funding is secured against an asset and therefore this would be subject to repossession should the loan repayments not be maintained.

Give Mortgageable a call today at 03330 90 60 30 or contact us to speak to one of our friendly advisors.

Further reading:

• £20,000 loans with bad credit.
• Instalment loans for bad credit.
• £10,000 loans for bad credit.

Equity release has risen in popularity over the past few decades, however, it has also received some negative press regarding consequences years down the line following taking out such a financial policy.

In this guide, we will explore what equity release is, the types of equity release as well as the pros and cons of this type of financial product.

What is Equity Release?

Equity release is the method of withdrawing the equity owned from property to turn it into a cash lump sum, a source of regular income, or a combination of both.

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Following undertaking an equity release, the homeowner can continue to reside in the property up either until the sale of the property, the move into a care home, or death.

Usually, the capital plus interest due to the equity release financial product is repaid by selling the property.

Equity release is usually only available to those over 55 years old and a mortgage does not need to be fully repaid on a property to be able to explore equity release as an option.

There are no repayments due on the financial product until the sale of the property which can be appealing however there can also be disadvantages of this type of financial decision.

Legislation of Equity Release Financial Products

Following a period of negative press regarding equity release products, the market was tightened and a regulation body, The Equity Release Council, was established. Following this change, the reputable companies offering equity release products have become members of the council.

Types of Equity Release

There are two types of equity release products available on the market:

• Lifetime mortgage – A lifetime mortgage is the most common type of equity release product. It is the process of obtaining a secured mortgage against the main residential property.  The lifetime mortgage holder continues to own the property and often continues to live within the property until the sale or death, whichever comes sooner, at which point the mortgage capital and interest due is settled.
• Home reversion – This option involves part or all of the property being sold to a home reversion provider in exchange for a lump sum or regular payments. The person concerned continues to live within the property however there is an agreement to maintain and ensure the dwelling.  A percentage value of the property can be ring-fenced for later use, such as inheritance, however, once the property is sold, the home reversion company will receive the proceeds of their share.

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Advantages of Equity Release

Equity release is continuing to see a sharp increase in popularity due to the many advantages it offers, these include:

• Tax-free Cash – Any money released with an equity release plan is tax-free. It enables you to gain access to a lump sum of money, a regular income, or support your pension.
• You can stay in your home – One of the main benefits of equity release is that you are able to stay in your property, this beats the typical route of having to sell and downsize. This is a perfect option for those who want to avoid the inconvenience and stress of moving.
• Fixed interest rates – The interest rates on equity release loans are fixed for the entire term of the loan, which provides the security that you will know exactly how much you owe at the end of the loan period.
• No monthly repayments – If you want to avoid monthly repayments, you can with equity release. The total amount is paid off in full when your property is sold after you pass away, move into a full-time care facility, or sell the property.

What are the Disadvantages of Equity Release?

Although very popular, equity release can have negative consequences such as:

• Negative equity – Consequences of utilising an equity release product before tighter regulation of such products was introduced was that some homeowners found themselves in a negative equity situation. Negative equity occurs when the total amount owed to lenders is higher than the property value.  This can occur during periods when property prices have crashed.  However, following the establishment of the Equity Release Council, the member companies now offer a no negative guarantee to remove this risk.
• Cost – The costs involved with equity release products can vary between equity release lenders, however, depending on the duration of time that the financial product is in place for, and the option is chosen regarding either paying accruing interest regularly or rolling the interest liability up until the end of the policy, the costs can escalate. Due to the variables involved it is always worth calculating the total costs of equity release products before committing to ensure that it is viable. It would also be worth seeking independent financial advice to discuss the costs involved against other options to ensure that an informed decision is made before committing.
• Income Tax – Depending on the amount drawn from equity release products, as well as other personal circumstances, there could be income tax implications and therefore it is important to seek independent financial advice or specialist tax advice to establish any possible tax liabilities before committing to an equity release product.
• Loss of means-tested benefits – Depending on the personal circumstances of the applicant and the amount of equity release that they are seeking to draw upon, they could lose access to means-tested benefits. Should there be any concerns regarding benefit access and eligibility, exploring the government website or seeking advice through citizens advice would be the best approach to find out more information?
• Loss of Inheritance – The amount of inheritance available to pass onto family members from a property with an equity release policy secured to it will be reduced. The level of the reduction will depend on; the amount of loan taken through the equity release, the interest rate and the method chosen to repay the interest, as well as the property prices at the time of sale. Not all of these factors can be planned for although some equity release products allow a percentage of the property value to be ring-fenced for passing onto family through inheritance. Due to the nature of the ramifications for other family members, it is strongly advised that homeowners seek independent financial advice ahead of any equity release applications.

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Equity Release Companies to Avoid 

Should an equity release product be the most appropriate financial option and a homeowner is ready to apply, a check should be undertaken to ensure that the chosen lender is a member of the Equity Release Council.

There are many companies on the market offering equity products however for the most protection, always avoid those who are not members of the Equity Release Council and therefore do not offer:

• A ‘no negative equity’ guarantee.
• Protection to vulnerable customers.
• Sensible, competitive interest rates.
• Sensible early settlement fee structures.
• Fixed interest rates.
• The right to remain on your property for life.
• The right to move to a different property.

Equity Release Companies to Avoid Summary

Although the equity release sector has faced significant tightened legislation over recent years, there are still many factors to be considered and fully understood before committing to such a financial product.

In addition, other lending options may wish to be explored and compared before selecting a choice, and therefore it is always worthwhile to seek independent financial advice for support in researching and pricing the various options available.

Give Loanable a call today on 01925 988 055 and they will provide you with the best deals available to meet your circumstances and consider any credit history you may have. With their expert advice, they can guide you through the process and give you the knowledge and confidence it takes to acquire a secured loan that is right for you.

If you have read all the information on secured loans carefully and feel that you want to proceed with a secure loan, get in touch with one of Loanable’s secured loan experts by emailing hello@loanable.co.uk who can work with you to find the best deal for your needs and circumstances.

Equity release has risen in popularity over the past few decades, however, it has also received some negative press regarding consequences years down the line following taking out such a financial policy.

In this guide, we will explore what equity release is, the types of equity release as well as the pros and cons of this type of financial product.

What is Equity Release?

Equity release is the method of withdrawing the equity owned from property to turn it into a cash lump sum, a source of regular income, or a combination of both.

Check Today's Best Rates >

Following undertaking an equity release, the homeowner can continue to reside in the property up either until the sale of the property, the move into a care home, or death.

Usually, the capital plus interest due to the equity release financial product is repaid by selling the property.

Equity release is usually only available to those over 55 years old and a mortgage does not need to be fully repaid on a property to be able to explore equity release as an option.

There are no repayments due on the financial product until the sale of the property which can be appealing however there can also be disadvantages of this type of financial decision.

Legislation of Equity Release Financial Products

Following a period of negative press regarding equity release products, the market was tightened and a regulation body, The Equity Release Council, was established. Following this change, the reputable companies offering equity release products have become members of the council.

Types of Equity Release

There are two types of equity release products available on the market:

• Lifetime mortgage – A lifetime mortgage is the most common type of equity release product. It is the process of obtaining a secured mortgage against the main residential property.  The lifetime mortgage holder continues to own the property and often continues to live within the property until the sale or death, whichever comes sooner, at which point the mortgage capital and interest due is settled.
• Home reversion – This option involves part or all of the property being sold to a home reversion provider in exchange for a lump sum or regular payments. The person concerned continues to live within the property however there is an agreement to maintain and ensure the dwelling.  A percentage value of the property can be ring-fenced for later use, such as inheritance, however, once the property is sold, the home reversion company will receive the proceeds of their share.

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Advantages of Equity Release

Equity release is continuing to see a sharp increase in popularity due to the many advantages it offers, these include:

• Tax-free Cash – Any money released with an equity release plan is tax-free. It enables you to gain access to a lump sum of money, a regular income, or support your pension.
• You can stay in your home – One of the main benefits of equity release is that you are able to stay in your property, this beats the typical route of having to sell and downsize. This is a perfect option for those who want to avoid the inconvenience and stress of moving.
• Fixed interest rates – The interest rates on equity release loans are fixed for the entire term of the loan, which provides the security that you will know exactly how much you owe at the end of the loan period.
• No monthly repayments – If you want to avoid monthly repayments, you can with equity release. The total amount is paid off in full when your property is sold after you pass away, move into a full-time care facility, or sell the property.

What are the Disadvantages of Equity Release?

Although very popular, equity release can have negative consequences such as:

• Negative equity – Consequences of utilising an equity release product before tighter regulation of such products was introduced was that some homeowners found themselves in a negative equity situation. Negative equity occurs when the total amount owed to lenders is higher than the property value.  This can occur during periods when property prices have crashed.  However, following the establishment of the Equity Release Council, the member companies now offer a no negative guarantee to remove this risk.
• Cost – The costs involved with equity release products can vary between equity release lenders, however, depending on the duration of time that the financial product is in place for, and the option is chosen regarding either paying accruing interest regularly or rolling the interest liability up until the end of the policy, the costs can escalate. Due to the variables involved it is always worth calculating the total costs of equity release products before committing to ensure that it is viable. It would also be worth seeking independent financial advice to discuss the costs involved against other options to ensure that an informed decision is made before committing.
• Income Tax – Depending on the amount drawn from equity release products, as well as other personal circumstances, there could be income tax implications and therefore it is important to seek independent financial advice or specialist tax advice to establish any possible tax liabilities before committing to an equity release product.
• Loss of means-tested benefits – Depending on the personal circumstances of the applicant and the amount of equity release that they are seeking to draw upon, they could lose access to means-tested benefits. Should there be any concerns regarding benefit access and eligibility, exploring the government website or seeking advice through citizens advice would be the best approach to find out more information?
• Loss of Inheritance – The amount of inheritance available to pass onto family members from a property with an equity release policy secured to it will be reduced. The level of the reduction will depend on; the amount of loan taken through the equity release, the interest rate and the method chosen to repay the interest, as well as the property prices at the time of sale. Not all of these factors can be planned for although some equity release products allow a percentage of the property value to be ring-fenced for passing onto family through inheritance. Due to the nature of the ramifications for other family members, it is strongly advised that homeowners seek independent financial advice ahead of any equity release applications.

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Equity Release Companies to Avoid 

Should an equity release product be the most appropriate financial option and a homeowner is ready to apply, a check should be undertaken to ensure that the chosen lender is a member of the Equity Release Council.

There are many companies on the market offering equity products however for the most protection, always avoid those who are not members of the Equity Release Council and therefore do not offer:

• A ‘no negative equity’ guarantee.
• Protection to vulnerable customers.
• Sensible, competitive interest rates.
• Sensible early settlement fee structures.
• Fixed interest rates.
• The right to remain on your property for life.
• The right to move to a different property.

Equity Release Companies to Avoid Summary

Although the equity release sector has faced significant tightened legislation over recent years, there are still many factors to be considered and fully understood before committing to such a financial product.

In addition, other lending options may wish to be explored and compared before selecting a choice, and therefore it is always worthwhile to seek independent financial advice for support in researching and pricing the various options available.

Give Loanable a call today on 01925 988 055 and they will provide you with the best deals available to meet your circumstances and consider any credit history you may have. With their expert advice, they can guide you through the process and give you the knowledge and confidence it takes to acquire a secured loan that is right for you.

If you have read all the information on secured loans carefully and feel that you want to proceed with a secure loan, get in touch with one of Loanable’s secured loan experts by emailing hello@loanable.co.uk who can work with you to find the best deal for your needs and circumstances.

Exploring finance options later on in life can be tricky, especially direct from the high street lenders, as they often deem those over 60 years old to be at higher risk.

The risk element is often due to two factors; an assumption of limited income and age. Therefore the terms offered on loans are often not very competitive compared to standard mortgages available to the younger age groups.

Should a retired person find a secured finance option and be successful with an application, often the duration of the loan could be considerably shorter depending upon age and income.

However, the financial market has been diversifying over recent years and is also more understanding that each case is unique, with every borrower having different requirements and backgrounds.

Benefits of Loans for Pensioners

At retirement age, it’s relatively common for individuals to have a lot of their finances locked up in assets.

In these circumstances, it’s common to want cash for the likes of holidays, home improvements or maybe a new car, which is where a secured loan can come in incredibly useful.

Equity release is another potential option, yet the terms of a loan are often more favourable, especially if you have a good credit history.

If you do have poor credit, you may also be interested in reading our guide on instalment loans for bad credit.

However, when applying for a loan, you need to demonstrate that you can pay it back. This is typically done by showing proof of income, but what do you do if you’re no longer employed? What else do lenders accept?

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What income is accepted?

Thankfully, there are many different forms of income that are accepted when applying for a pensioner loan, these include the following:

• State pension
• Personal pension
• Employer retirement benefit
• Rental income from a buy-to-let property
• Dividends
• Income from a part-time job

As you can see, there are many forms of income that can be used as part of your application and you can use a combination to demonstrate your ability to repay the loan.

If you are in receipt of disability benefit, this can also be used, but housing benefit is not recognised as a suitable form of income.

Read our complete guide on how do secured loans work? 

How to Apply for a Pensioner Loan

When you want to make an application, it makes sense to compare all the latest loan deals available that meet your eligibility criteria. There are many ways to make an application and it can be done over the phone, in person or online.

You can apply for a loan today and receive assistance from a loan broker by using this form.

In order to make an application, the loan broker will ask for some personal information, including the following:

• Personal details
• Proof of income
• Information on any current debts you have

Related quick help guides: 

• Secured loans brokers.
• Secured loans for pensioners.
• Secured loans for self employed.
• Interest only secured loans.
• Can I get a secured loan on a buy to let property? 
• Secured business loans.

Homeowner Loans for Retirees

A retired person may wish to consider a secured homeowner loan for many reasons such as; to undertake developments within a property or to make other investments that would have a higher return than the cost of the borrowing.

It is often recommended to retired people that instead of dipping into retirement savings, other options of financing should be explored, especially during times of low-interest rates.

However, always be mindful that secured loans are held against current assets such as property, and therefore should the repayments not be kept up, the asset could be at risk from possession by the lender.

Specialist lenders are often approached to explore the wider market.

Considerations Before Applying

As with any financial decision, it is recommended to ensure that plenty of research is undertaken before committing to an option.

As mentioned, typically the high street may not be the most competitive lending market to the older borrower and therefore by approaching a broker, all options can be explored to find the most suitable option and the best prices.

Before applying for any suitable financial product it is worth considering the following:

• Ensure the accuracy of a credit report – Request a free report to check it for errors. This credit history report will be used by lenders when reviewing an application and therefore is vital that it is correct.
• Consider how much borrowing is required – It is advisable to only borrow what is needed for the project or purpose of the lending, over the shortest duration affordable to keep interest payments down. This also will allow a financial review period sooner, following a shorter duration of the loan.
• Check the chosen option for age restrictions – Each lender will set their age restrictions on borrowing, so it is worth checking this before applying.
• Accurately calculate living costs – During the application process, a lender is likely to request the living costs and other expenses that an applicant has outgoing each month to ensure the loan is affordable. Having this information in advance will save time later on.

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Lenders Criteria for Retired Persons

Specialised lenders may consider a secured loan application from a retired person on a case by case basis, reviewing each applicant against its borrowing criteria within the following elements:

• Age – The applicant’s age both at the time of the loan application as well as the age at the planned end of the loan
• The credit score of the applicant
• Income and affordability – The total monthly income of the applicant, which can be from multiple sources such as a pension and a part-time wage or rental income and dividends
• Equity – The amount of property equity or the total value of other assets

Each lender will have its loan eligibility criteria for all of the above elements including a maximum age that they will lend to, to commence a loan, as well as the age when the loan is due to be repaid.

Other Financial Options for Pensioners

As well as secured loans, an array of other unsecured financial products are available for the older borrower including credit cards, mortgages, equity release mortgages or car finance.

However, often the interest rates offered on unsecured borrowing are higher due to the risks borne by the lender.

The suitability of any of the above options would depend on the purpose of the desired borrowing, the duration of the financial agreement and the costs involved. Seeking independent financial advice may assist with streamlining the relevant options and comparing the best deals available.

In addition to lending options, a pension drawdown could be possible. However, any drawdown taken from a pension pot will affect the overall value of the pension, and subsequently the income that the pension pot could provide.

Therefore, any consideration of such options should be discussed with an independent financial advisor to ensure that this is the right approach for the pensioner and that the consequences are fully understood before committing.

Secured Loans for Pensioners Summary

As with any financial decision, it’s always recommended to seek independent financial advice before committing, to ensure that all terms are fully understood.

Independent brokers will also have access to the whole of the market, rather than just high street lenders which will often reveal a range of options and competitive prices.

Should you be seeking a secured loan within the following categories, approach a specialised broker for personalised service and to discuss the options available:

• Loans for those up to age 85.
• Loans accepting pensions as acceptable income.
• Loans accepting benefits and disability living allowance as approved income types.
• Alternative equity releases financial options.

However, remember that all secured homeowner loans will have consequences for owned assets if the repayments are not kept up.

Give Mortgageable a call today at 03330 90 60 30 or contact us to speak to one of our friendly advisors.

Further reading:

• £20,000 loans with bad credit.
• Instalment loans for bad credit.
• £10,000 loans for bad credit.

If you are a property owner and need to borrow money but bad credit is preventing you from doing so, a secured loan could be the right option for you.

A secured loan can allow you to use your property as collateral, opening up a lot of possibilities for you!

However, secured loans do come with risks and also have some general requirements that must be met before an agreement can be made.

This article will give you information that you need to know about obtaining a secured loan, and how our expert secured loan brokers can help you along the way.

How Does a Secured Loan Broker Work?

The difference between taking out a secured and an unsecured loan is the use of your assets as collateral.

Unsecured loans are also simply known as personal loans and come in two forms:

• Opening a line of credit (such as credit or store cards).
• Fixed interest loans (such as students loans and personal loans).

To be eligible for unsecured loans, you don’t necessarily have to be a property owner or have a mortgage but they are dependent on your credit rating, and it does usually need to be fairly good.

With that being said, if payments were missed or defaulted under an unsecured loan, the lender is unable to automatically resort to reclamation through property seizure but will have other routes, such as through legal means, to reclaim the money that was borrowed.

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Without the collateral providing security to the lender, an unsecured loan will tend to have higher interest rates than that of a secured loan and missed payments can be more unfavourable as they can incur higher fees and negatively affect your credit rating.

This, in turn, can lead to making it more difficult to obtain credit in the future.

Secured loans (also known as homeowner loans or 2nd charge mortgages) on the other hand, do use the property as collateral and as mentioned above, is a great option for those with a poor credit rating, as the lender has security in the equity of the property being used making it less risky for them.

However, the major risk for you when it comes to this, is that the lender will have legal rights to repossess your home if you have not been keeping up with your repayments. This is doubtlessly a severe consequence for some, so you have to make sure you are certain before taking out a loan against your assets.

Read our complete guide on how do secured loans work? 

Types of Secured Loans

There are various types of secured loans available, here are some of the most common:

Second Charge Mortagages

A second charge mortgage also referred to as a secured homeowner loan enables you to use the equity in your home as security for a loan. Essentially, it means you have two mortgages on your home. The equity is the percentage of your property owned by you i.e. the value of your property minus any remaining mortgage.

Buy-to-let

If you have a buy to let property, you could potentially use the equity as security for the loan. This is a common scenario, by which people may fund a new project.

Residential

Are you a regular property owner who wants to secure finance, a secured loans broker may be able to help. Give us a call on 03330 90 60 30 for a no-obligation chat.

Related quick help guides: 

• Secured loans brokers.
• Secured loans for pensioners.
• Secured loans for self employed.
• Interest only secured loans.
• Can I get a secured loan on a buy to let property? 
• Secured business loans.

Secured Loans Broker – What can they do? 

If you decide that you would like to look further into the types of secured loans available and compare what options are best for you, there are two main ways of going about this.

The first is to contact a secured loans broker, like us, whom you will be able to speak to on a personal level and have a conversation regarding what options are available to you.

The other option is to take a look at online comparison websites, which will take into account the offers that are available, giving you a wide array of choices, but it may be more difficult to find something specific for your circumstances.

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It’s much more efficient and easier to speak to a professional who knows exactly what to look for and can tailor a solution that fits your needs.

Searching for a secured loan by yourself is no easy task and, as you may already know, the vast array of choices can be a little overwhelming. Our secured loan experts will be able to effectively filter the options on your behalf, taking most of the work out of your hands and streamline the whole process.

Can I Get a Homeowner Loan with Bad Credit?

In general, the main requirement is that you already have ownership of a property or an existing mortgage and enough equity available to warrant the amount that is being borrowed.

It’s also worth mentioning that a secured loan is an alternative to a further advance if you want to avoid early repayment charges when switching between lenders.

If you are concerned about whether or not you’ll be eligible for a secured loan with bad credit,  our experts can help you along the way and will consider credit histories which include the following:

• Late payments and defaults.
• Low credit score or no credit history.
• Mortgage arrears.
• Debt management plans.
• County Court Judgements (CCJs).
• Individual voluntary arrangement (IVA).
• Repossession.
• Bankruptcy.

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You may also be interested in reading our guide on instalment loans for bad credit.

Secured Loans Broker- what factors are considered?

When taking out a secured loan there will be several considerations to make that a secured loans broker will also want to discuss with you during your conversation. As taking out a homeowner loan is a significant decision to make, it would be wise to know where you stand and think about the following:

• Loan Term – This is simply the length of time you want to spend making repayments. The shorter the loan term, the greater the monthly repayments will be but also the lower the interest repaid will be and vice versa.
• Interest Rates – The interest rate can depend on several factors including the loan term, the amount borrowed, your credit score and the collateral being offered.
• Your Financial Status – When choosing a loan, you should really know where you stand when it comes to your financial situation in regard to what you can afford in repayments and interest. Keep in mind that with your property as collateral, if you are unable to make repayments you may be at risk of losing your home.
• Loan to Equity Ratio – The more equity available on your home, you are likely able to borrow more. Equity is the amount of mortgage you have paid from the total value of the property and this is the amount considered recoverable by the lender if you were to default on payments.

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Secured Loans Broker – How Can We Help?

There’s no doubt that homeowner loans are great for those with bad credit but as mentioned previously, taking out a secured home loan is a major life decision that’s not to be taken lightly and nobody should have to make that choice alone!

Give Loanable a call today on 01925 988 055 and they will provide you with the best deals available to meet your circumstances and consider any credit history you may have. With their expert advice, they can guide you through the process and give you the knowledge and confidence it takes to acquire a secured loan that is right for you.

If you have read all the information on secured loans carefully and feel that you want to proceed with a secure loan, get in touch with one of Loanable’s secured loan experts by emailing hello@loanable.co.uk who can work with you to find the best deal for your needs and circumstances.

Further reading:

• £20,000 loans with bad credit.
• Instalment loans for bad credit.
• £10,000 loans for bad credit.