Homeowner loans
Take out a loan against your property
- Compare loans of up to £500,000
- See if you’re eligible for a homeowner loan today
- Check which loans are available without impacting your credit score
What is a homeowner loan?
A homeowner loan is a form of secured borrowing. It allows you to borrow a large lump sum of money using your property as security. While this lessens the risk for the lender, it increases it 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 throughout the term of the loan, which could last between one and 25 years.
Homeowner loans are sometimes known as home equity loans, second mortgages or second charge mortgages. Our loan comparison service lets you compare loans up to £500,000.
How do homeowner loans work?
To apply for a homeowner loan, you must have built up equity in your home. That’s how much of your property you own outright.
- You can borrow against the value of your property up to a set percentage
- You’ll have to pay interest for the duration of the loan term
- You’ll need to pass credit and affordability checks to qualify for a homeowner loan.
The maximum amount you could 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 your home is worth £250,000 and you have a £100,000 mortgage, the value of your equity is £150,000. That means your loan to value (LTV) is 40%. If you want to borrow £90,000, you’ll need to find a provider that will lend up to 60% LTV.
If your application is approved, you’ll receive a homeowner loan as a lump sum, which you’ll have to pay back in monthly instalments – with added interest – over the loan term.
It’s also worth noting that some homeowner loans charge an arrangement fee and may have other set-up costs.
Home loan repayments are separate from your mortgage. But, like a mortgage, your home could be repossessed if you’re unable to pay back what you owe. So, it’s important that you always pay on time and only borrow what you need.
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 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 the £10,000 limit associated with unsecured loans.
Secured loans also tend to offer lower interest rates and longer loan terms, 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’ll likely pay more interest overall.
Who are homeowner loans suitable for?
This type of loan is 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, like home renovations
- Want to spread out the cost of your loan over a longer period.
Providers will want to make sure you have equity in your home so you have funds available to pay off 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, 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 – you may be planning a major home improvement project, such as installing a new bathroom. When the work is done, it should add value to your property.
- 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.
- Making a big one-off purchase – if you can’t get a personal loan but need to fund a large purchase, like a new boiler, a homeowner loan could be the solution.
- Buying a second property – you could use the money as a deposit to buy an additional property, such as a holiday let.
What should I consider when taking out a secured homeowner loan?
Some key things you need to understand before you take out this type of secured loan:
- If you fall behind or stop making payments on the loan, the lender could take you to court, and your house could be repossessed and sold to repay the debt.
- This kind of loan typically has a variable interest rate, so it could go up or down as the market changes. And if you also have a variable rate mortgage, you could get hit twice if rates go up.
- Some lenders won’t allow a ‘repayment holiday’ – which is where you can request a break of a month or two if you have financial issues.
What are the types of homeowner loan?
The 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 could borrow.
- Bridging loan – this allows you to borrow money for a very short amount of time. For example, it could help free up funds to buy a new home while you’re waiting for the sale of your current property to go through.
- 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 loan, reducing your risk to lenders.
- Debt consolidation loan – this allows you to pay off your existing debts with a single loan so you’re making one monthly repayment. While you could lower your monthly repayments, you could end up paying more in interest overall if you borrow money for longer.
Think carefully before securing other debts against your home. Your property may be repossessed if you do not keep up 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?
Having a poor credit history may mean you can only access smaller loans or are charged a higher interest rate as the loan provider wants to mitigate any risk you might pose.
If you have existing debts, it’s worth seeking out 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 promises 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. This works best if you pay off the balance before the 0% period ends.
What do I need to compare loans?
It’s quick and easy to compare different types of loans with our comparison service.
We’ll show you which loans might be available to you, without it affecting your credit score, once you’ve given us details about:
- How much you want to borrow
- How long you want to borrow for
- How much you can afford to pay back each month.
What our expert says...
“A homeowner loan is a big financial consideration. While the interest rates might be more favourable than with an unsecured loan, you face losing your home if you don’t keep up 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.”
- The Editorial Team, Experts in personal finance, insurance and utilities
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 £500,000 |
Frequently asked questions
Does a homeowner loan affect your mortgage?
Having a loan secured against your home 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 loan providers more cautious about lending to you.
Once the loan is paid off, it shouldn’t affect future mortgage applications.
What happens if you want to move house?
If you sell your house, you’ll usually need to pay off your secured loan before you move. However, some lenders will allow you to transfer the loan to your new property, although you may have to pay a fee.
What is the typical variable rate for a homeowner loan?
There’s no typical variable rate for a homeowner loan. With a variable rate loan, the amount of interest you pay can change during your loan term.
Any fluctuations will depend on the Bank of England’s base rate, which is impacted by the general state of the economy.
While a variable rate is subject to change, you shouldn’t expect it to change every month.
How much could I borrow with a homeowner loan?
Homeowner loans tend to be for between £10,000 and £500,000. They’re typically paid back over a fairly long term, often between five and 25 years.
You can use Compare the Market to compare secured loans of up to £500,000, 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 still owe on your mortgage. In a nutshell, it’s the proportion of your property you own outright.
For example, say you bought a house for £200,000 and your outstanding mortgage balance is £120,000. That means your home equity is £80,000.
When you apply for a homeowner loan, the lender will look at how much equity you have in your home. This will help to determine how much you’ll be able to borrow and the interest rate you’ll be offered.
What fees might I need to pay for a homeowner loan?
Some lenders will charge fees as part of your loan agreement, so you’ll need to take these into account when you’re budgeting. They might 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 up to 10% of the loan value
- An early repayment charge if you pay off your loan ahead of the term end date.
Does the broker fee impact your homeowner loan?
If you go through a broker, you’ll need to take into account their fee when working out the overall cost of your loan. The fee amount varies among brokers.
A broker fee won’t actually form part of your loan. It’s a separate payment that you make to the broker.
What does ‘total amount payable’ mean with a homeowner loan?
Total amount payable is how much you’ll end up paying back over the full term of the loan.
For example, paying back a £30,000 loan over 15 years might cost you more than £40,000. But if you paid it back over five years, you’ll pay less overall.
Can you get an unsecured homeowner loan?
Homeowner loans are usually secured against the property you own, which is why they offer access to larger amounts for borrowing. Some loan providers will offer unsecured homeowner loans, but they come in the form of a guarantor loan.
A guarantor loan is guaranteed by a family member or friend, who takes on the responsibility for repaying the loan if you’re unable to.
