Homeowner loans

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What is a homeowner loan?

A homeowner loan lets you borrow a large lump sum of money using your property as security. This means it’s a ‘secured’ loan, as the borrowing is secured against an asset – in this case, your home. While this reduces the risk for the lender, it increases the risk for you as you could lose your home if you’re unable to pay back the debt.

You’ll need to make regular monthly repayments (including interest) throughout the term of the loan, which could last between three and 30 years.

Homeowner loans are sometimes known as home equity loans, second mortgages or second charge mortgages. Our loan comparison service lets you compare homeowner loans up to £150,000.

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How do homeowner loans work?

To apply for a homeowner loan, you need to have built up equity in your home. (Equity is the share of your property you own outright, as opposed to owing on a mortgage.) Here’s how homeowner loans work:

You borrow against the value of your equity in the property up to a set percentage.

The maximum amount you can borrow will depend on the loan-to-value (LTV) ratio – that’s the size of the loan as a percentage of the equity you own.

For example, if you held £100,000 equity in your home and wanted to borrow £60,000 against it using a homeowner loan, you’d need to find a provider willing to lend up to 60% LTV.

You’ll need to pass credit and affordability checks to qualify.

It’s also worth noting that some homeowner loans charge an arrangement fee and may have other set-up costs.

You pay interest for the duration of the loan term.

If your application is approved, you’ll receive a homeowner loan as a lump sum. You’ll have to pay it back in monthly instalments – with interest – over the loan term.

Homeowner loan repayments are separate from your mortgage. But, like a mortgage, your home could be repossessed if you don’t pay back what you owe. So it’s important that you only borrow what you need and always make your monthly repayments on time.

What is a secured loan?

A secured loan is a loan that’s secured against an asset. The asset needs to be something you own and is known as collateral.

The collateral required may vary depending on the amount you’re looking to borrow, because it needs to be worth enough to cover the loan amount.

With a secured homeowner loan, you put up your property as collateral. This can be very risky because your home could be repossessed if your financial circumstances change and you’re unable to pay back what you owe.

A secured loan usually allows you to borrow a larger amount, often much more than you can with an unsecured loan.

Secured loans also tend to offer lower interest rates and longer loan terms. That’s because the loan provider has your collateral to reduce the risk of their investment in you. But because you’re paying back the loan over a longer term, you’re likely to pay more interest overall.

Who are homeowner loans suitable for?

Homeowner loans are generally for homeowners or mortgage payers who want to borrow a larger sum of money than they could with an unsecured personal loan.

A secured homeowner loan might be a suitable option if you:

Own part or all of your home
Are having trouble getting approved for an unsecured personal loan
Are a homeowner with a poor credit history
Need a large amount to fund a big expense, such as home renovations
Want to spread out the cost of your loan over a longer period.

Lenders will want to make sure you have equity in your home, to cover the loan and any outstanding mortgage debt if you’re unable to make the monthly repayments.

If you’re not sure if a homeowner loan is right for you, it’s a good idea to speak to an independent financial advisor.

What can homeowner loans be used for?

Homeowner loans can be used for a variety of purposes, including:

Home renovations or a big one-off purchase – can be useful if you can’t get a personal loan but need to fund an expensive item such as a new boiler.
Consolidating debts – you could use a secured loan to combine multiple existing debts into a single loan, making your finances easier to manage. Just be aware that extending the loan term could mean you end up paying more overall.
Buying a second property – you could use the money as a deposit to buy an additional property.

What are the types of homeowner loan?

Types of secured loan that allow you to use your home as security include:

Second mortgage – you use the equity in your home to borrow money. Also known as a second charge mortgage, it’s a separate loan agreement to your original mortgage. Typically, the more equity you have, the more you might be able to borrow.
Bridging loan – allows you to borrow money for a very short amount of time. A bridging loan is most often used to buy a new property while you’re waiting for your existing property to sell. You can’t compare bridging loans with Compare the Market.

Bad credit loan – if you have a poor or patchy credit history, you may be able to use your home as security to take out a bad credit loan, reducing your risk to lenders.
Debt consolidation loan – lets you pay off your existing debts by combining them into a single loan. While a debt consolidation loan could lower your monthly repayments, you could end up paying more in interest overall if you borrow money for longer.

Think carefully before securing debts against your home. Your property may be repossessed if you don’t keep up the repayments on your mortgage or any debt secured against your home.

How much does a homeowner loan cost?

When you’re comparing homeowner loans, the APRC (annual percentage rate of charge) will tell you the total cost of borrowing, including interest and other charges.

The rate of interest you’ll be charged varies according to the size and duration of the loan, along with the value of the property you’re taking the loan against.

Can I get a homeowner loan with bad credit?

It’s not impossible to get a homeowner loan with bad credit. But lenders might impose a maximum loan term or borrowing limit. And you’re likely to be charged a higher interest rate.

If you have existing debts, it’s worth getting free debt advice before you decide to take on a homeowner loan.

Am I eligible for a secured homeowner loan?

Eligibility criteria varies among lenders but, typically, they’ll look at:

Your credit history
Your income and outgoings
The amount of equity you have in your home.

Just be aware that when you apply for a loan, the lender will carry out a hard credit search that will be marked on your credit file.

Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.

What are the alternatives to homeowner loans?

Alternatives to homeowner loans that could be more suitable for you include:

Remortgaging – you might be able to increase or extend your mortgage to raise the extra funds you need. But remember to factor in any penalties and charges you may have to pay.
Unsecured personal loan – allows you to borrow money without putting up your home as security. It can be a good option for borrowing a smaller amount of money over a shorter term, although interest rates may be higher.
Guarantor loan – a type of unsecured personal loan that’s guaranteed by a family member or friend, who agrees to pay back the debt if you can’t.
Interest-free credit card – for a large one-off purchase, a credit card with a 0% interest period could be suitable. You’ll need to make at least the minimum payments each month and pay off what you owe before the 0% period ends, or you’ll be hit with high interest charges.

What’s the difference between remortgaging to release equity and a homeowner loan?

Remortgaging to release equity involves taking out a new mortgage deal on your existing property. Typically, you would increase the length of the mortgage or take out a bigger mortgage to free up the cash you’ve built up in your home (the equity).

With a homeowner loan, your mortgage is unaffected. You use your home as security to borrow a separate amount of money.

What do I need to compare loans?

It’s quick and easy to compare homeowner loans with Compare the Market. We’ll show you which loan rates you could get, without any impact on your credit score. Just tell us:

How much you want to borrow
How long you want to borrow for
How much you can afford to pay back each month.

Just be aware that when you formally apply for a loan, the lender will carry out a hard credit search that will be marked on your credit file.

Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.

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What our expert says...

“Taking out a homeowner loan is a big decision. While the interest rates might be more favourable than with an unsecured loan, you face losing your home if you don’t keep up with the repayments. You need to be confident you can pay on time every month, throughout the entire term of the loan – even if your personal circumstances change.”

- Guy Anker, Personal finance and insurance expert

Why use Compare the Market?

Check your eligibility and see pre-approved options that suit your needs

Compare homeowner loans from a range of lenders

Homeowner loans available up to £150,000

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Frequently asked questions

Does a homeowner loan affect your mortgage?

Having a loan secured against your house or flat could affect your ability to remortgage or take out a mortgage on a new property.

That’s because the loan will increase your outgoings and reduce the amount of equity in your home that you own outright. This could make mortgage providers more cautious about lending to you.

Once the loan is paid off, it shouldn’t generally affect future mortgage applications.

What happens to a homeowner loan if you want to move house?

If you sell your house, you’ll usually need to pay off your secured loan before you move. You can either:

Pay back the loan outright before you sell your house
Pay back your homeowner loan using the proceeds of the sale

Some lenders will also allow you to transfer a homeowner loan to your new property, although you may have to pay a fee.

What interest rate can I get on a homeowner loan?

Homeowner loans can have variable rates, which can go up or down, or fixed rates that stay the same for a set period.

When you compare homeowner loans, look at the APRC (annual percentage rate of charge). It shows you, as a percentage, the annual cost of a loan over its duration, including the interest and any fees.

But remember, you may not get the advertised APRC. The rate you’ll get depends on things such as your credit score, the amount you borrow and over what term.

How much could I borrow with a homeowner loan?

You can use Compare the Market to compare secured loans up to £150,000, but how much you can borrow will depend on:

The equity you have in the property
Your income
Your credit history
Your age
The loan term (length of the loan).

What is home equity?

Home equity is the difference between the current market value of your property and how much you owe on your mortgage. In short, it’s the portion of your property you own outright.

For example, say your house is worth £350,00 and your outstanding mortgage balance is £150,000. That means your home equity is £200,000.

What fees might I need to pay for a homeowner loan?

Fees that you might need to pay if you take out a homeowner loan include:

An arrangement fee for setting up the loan
A valuation fee, because the loan is secured by your property
A broker fee, which can be a fixed amount, a small percentage of the loan or a combination of both
An early repayment charge (ERC) if you pay off your loan early.

What does ‘total amount payable’ mean with a homeowner loan?

Total amount payable is how much you’ll end up paying back over the length of the loan. It includes the original amount borrowed plus all the interest that’s accrued.