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Secured Loans

Secured Loans Explained

Second Charge Mortgages Explained

Second charge mortgages – also known as secured loans – were once seen as a last resort. Today, however, with rates close to traditional mortgage rates, no early redemption charges, fixed rates, and loan to value rates (LTVs) of up to 95%, second charge mortgages are an attractive option. There are many scenarios when a second charge will be a profitable alternative for raising capital – seconds can also offer a welcome haven from some of the restrictions on the first charge market.

Why A Secured Loan?

The increasing focus on the mortgage market and restrictions on lending have made the option of a secured loan even more favourable for clients who need to capital raise. Secured loans can be used for virtually any legal purpose, and are generally quicker to complete than a remortgage.  A secured loan can also enable clients to borrow money – particularly helpful if you do not wish to disturb your current mortgage arrangements. Loan sizes are available from £10,000 right up to £2,500,000, and with loan terms of up to 25 years, a secured loan is often a credible alternative to a remortgage. Secured loans have the added attraction of no upfront costs and there is no requirement for a solicitor to be involved in the transaction.

Secured loans, What is available?

  • LTVs up to 95% for employed applicants
  • LTVs up to 95% for self-employed applicants
  • Loan sizes from £10,000 to £2,500,000
  • Rates from as low as 4.95%
  • Buy-to-let second charges available up to 75% LTV
  • Range of non-conforming products for clients who have poor credit or may need to access credit repair products.
  • Loans available for borrowers looking to exit a debt management plan
  • Relaxed proof of income for self-employed borrowers
  • Maximum redemption penalties of 2 months’ interest
  • Loan purpose – secured loans cover most legal purposes, including business and repayment of tax bills among others

Who are secured loans available to?

  • Employed or self-employed homeowners who have an existing mortgage
  • Landlords of rental properties – many of our lenders base affordability on rental income without further proof of income
  • Borrowers who do not wish to upset their existing mortgage repayments – such as those with interest-only mortgages or low variable rate mortgages
  • Interest-only borrowers who, because of limitations on further advance options (e.g. loan size or LTV), would be forced onto a capital and interest mortgage
  • Borrowers who, for reasons of affordability, may have had debt consolidation applications declined (especially if the debt being consolidated is still being built into the income assessment)
  • Self-employed applicants – all our lenders will accept accountant’s certificates to confirm income. In some circumstances we can also work from bank statements
  • Clients with early repayment charges (ERCs), who may need to capital raise without disturbing their existing mortgage
  • Clients whose ability to capital raise is affected by lender income multiples
  • Clients with missed or late payments on unsecured credit
  • Clients in a debt management plan, or those looking to repay an individual voluntary agreement (IVA) or a bankruptcy.

Case Study 1

  • £80,000 net loan
  • 43% LTV
  • Lender – Prestige Finance
  • Rate – 5.60% (6.46% APR)
  • Monthly payment – £586 over a 20 year term
  • Client wanted to consolidate all their outstanding credit – which totalled £60,000 – and also took £20,000 for school fees and home improvements
  • Existing outgoings on their unsecured credit totalled £1800 per month – when we completed the loan, our client’s outgoings were reduced to £586 – saving them £1200 per month.

Case Study 2 

  • Property value £1.45 million
  • First mortgage £757k costing £3908 per month
  • Second charge of £130k costing £1076 per month
  • Credit cards of £50.5k costing £1515 per month
  • Client wanted to remortgage but had a £15k ERC on current mortgage
  • Mortgage Xperts negotiated with the mortgage lender, who switched the current product to a lower rate without any ERC
  • Mortgage Xperts then arranged a second charge of £194k, which paid off the existing second charge and credit cards, and allowed the applicant to carry out some home improvements.

Historically second charge mortgages, sometimes known as Secured Loans, were often seen as a last chance option. The rates were much higher and carried hefty early repayment charges. Fixed rates and Loan to values up to 95% – second charge mortgages are often a very attractive option.

There are many scenarios when a second charge may be a beneficial alternative when looking at capital raising – seconds can also offer a welcomed haven against some of the restrictions on the first charge market.