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If you’re a homeowner and you need to access a lump sum of cash, you may have the option of borrowing against your house, flat or apartment.
With tens or hundreds of thousands of pounds potentially tied up in your home, you could release some of this equity by taking out a loan secured against your property. But while a secured loan can help you to borrow a large sum of money, your property is at risk of repossession if you don’t manage to repay it. Find out when you might choose to borrow against your house and if it’s the right option for you.
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Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a loan or any other debt secured on it.
Information for tenants
You must be a homeowner to apply for a Secured Loan via Norton
If you’re not a homeowner and would still like to search for a personal loan, then you can try searching for an unsecured loan via our loans eligibility service with Monevo.
Who can borrow against their house?
If you’re a homeowner, you may be able to borrow against your property with a form of secured loan known as a homeowner loan.
A secured, or homeowner, loan is also known as a second charge mortgage.
Alternatively, you could ask your existing lender if you could borrow more on your current mortgage instead of taking out a separate loan – this is called a further advance.
Unfortunately, if you’re currently in negative equity, you won’t be able to take out a secured loan on your house. In other words, if you owe more on your mortgage than your house is worth, you won’t own any equity that you can secure a loan against.
» MORE: What is a secured loan?
Am I eligible to take out a loan against property?
Having equity in your home doesn’t guarantee that you can take out a loan against it.
As with any other type of borrowing, you will need to meet the lender’s eligibility criteria. The loan provider will want reassurance that you can repay the loan, so it will consider your credit history, income, expenditure, and employment status, as well as the amount of equity you hold in your home.
If you have a poor credit score, you may still be able to take out a secured loan. Because of the extra security the property gives the lender, people with bad credit histories may find it easier to get accepted for a secured loan than an unsecured loan.
» MORE: Tips for applying for a loan
How much can I borrow against my house?
When you borrow against your home, you will typically be able to borrow more than you could with an unsecured personal loan. This is because the lender has the reassurance that it can use your property to get back the money it is owed if you default on the loan.
In general, you may be able to borrow anything from a few thousand to several hundreds of thousands of pounds with a secured loan.
The amount you can borrow will be determined by the equity that you have in your home, rather than how much your house is worth. This is particularly significant when you have a mortgage on your house.
For example, if your house is worth £300,000 and you have £200,000 left to pay on your mortgage, you have £100,000 in equity. This means that you will only be able to take out a loan secured against the £100,000 that you have (but you won’t be able to borrow the full amount).
Lenders will also consider your income, credit score and other factors to work out how much you can afford to borrow.
Bear in mind that you should only borrow the amount you need. There is no point borrowing a larger sum just because you can, as you would still need to pay interest on it.
» MORE: Compare best secured loans
Pros and cons of securing a loan against property
There are definite advantages to borrowing against your home, but also some potential disadvantages to be aware of too.
Pros
- You might be able to get a larger loan than with an unsecured personal loan.
- It may be an easier way to get a loan if poor credit is stopping you from getting a personal loan.
- You may qualify for a lower interest rate than on an unsecured loan.
- Loans secured against property can often be paid back over longer periods of time.
Cons
- You could lose your home if you don’t keep up with your repayments.
- It can take longer to arrange than a personal loan.
- Fees and charges could be higher to cover the more complex nature of taking a loan against property.
- Making repayments over a longer period means you could end up paying more interest overall.
- The interest rate on the loan might be variable, meaning your monthly repayments could go up as well as down.
Should I borrow against my house?
This very much depends on your own personal circumstances and advice should be sought if you are not sure. You may want to borrow against your house if:
- you need a large sum of money, to fund home improvements for example
- you want to borrow over a long period. However, the longer the repayment period the more interest you will pay
- you struggle to access the best interest rates. Secured loans provide lenders with extra security, so interest rates will typically be lower than those on unsecured loans
Taking out a loan secured against your house isn’t a decision you should take lightly. Secured loans put your home at risk, so you should only apply for one if you are confident that you will be able to repay it in full.
What are the alternatives to taking a loan against property?
It’s always worth considering other forms of borrowing before deciding on a secured loan.
For example, instead of taking out a separate secured loan, you may be able to remortgage. You could borrow more than the amount you currently owe on your mortgage, and use the excess amount to pay for whatever you choose. Lenders may ask what you plan to use the extra money for, and this could affect how much you can borrow.
Check if you would face any fees if you were to remortgage before your current deal has ended.
Alternatively, if you can get the money you need from an unsecured loan, this may be a less risky option for you. The lender will simply look at your finances and your credit score to make a decision, without needing any property to act as security.
You may be able to borrow up to £50,000 from an unsecured loan, although some lenders may offer more or less, depending on your situation.
» MORE: Best personal loans
WARNING: Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a loan or any other debt secured on it.
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Dive even deeper
What is Security on a Loan?
Secured Loans Explained
by Caroline Ramsey