Secured loans, compared

A secured loan is a loan secured against your home, sitting alongside your existing mortgage rather than replacing it. You'll also see it called a homeowner loan or a second charge mortgage, they're all names for exactly the same product. The "second charge" part refers to where the lender sits in the queue if your home is ever sold: your existing mortgage lender is first charge and gets paid first, the secured loan lender is second charge and gets paid from whatever's left after that.

Because a secured loan is a separate agreement from your mortgage, your existing mortgage rate, deal and lender are left completely untouched. That's the main reason many homeowners choose a secured loan over remortgaging: if you're part way through a fixed rate you like, a secured loan lets you keep it, rather than paying an early repayment charge to leave early and take out a new, larger mortgage instead. If your existing deal has already ended, this advantage matters less, and it's worth comparing a secured loan against a remortgage properly in that case.

Secured loans are typically used for larger amounts than most unsecured personal loans stretch to, commonly anywhere from £5,000 up to £100,000 or more, and for purposes such as consolidating unsecured debt, funding home improvements, or covering another significant one-off cost. Because the loan is secured against your property, lenders can offer larger amounts and longer terms than they would unsecured. That flexibility comes with a serious trade-off, though: your home is at risk if you don't keep up the repayments, and that's worth sitting with before comparing rates and terms.

Secured loan rates are priced on risk, in a similar way to a mortgage. The main things that move your rate are how much equity you have (your loan to value, or LTV), your credit history, how much you want to borrow, and the term you choose. Broadly, a lower LTV and a cleaner credit history mean a lower rate is available to you; a higher LTV or a history of missed payments usually means a higher rate, because the lender is taking on more risk in return for lending to you.

You'll typically be offered a choice between a fixed rate, where your payment stays the same for an agreed period, and a variable rate, which can move up or down with the lender's own rate or the Bank of England base rate. Most homeowners who are consolidating debt and want payment certainty choose a fixed rate, but it's worth asking your broker to show you both options with the actual figures, because the right choice depends on your appetite for the payment changing over time, not just which sounds safer.

Terms on secured loans commonly run from 3 years up to 25 or, with some lenders, 30 years. A shorter term means higher monthly payments but less interest paid overall; a longer term brings the monthly payment down but increases the total amount you'll repay, because you're paying interest for longer. There's no single "right" term, it's a trade-off between what you can comfortably afford each month and what you want to pay in total, and it's one a good broker should talk through with you rather than defaulting to the longest term available just to make the monthly figure look smaller.

How much you can raise through a secured loan depends mainly on two things: the equity in your home, and what a lender thinks you can realistically afford to repay. Equity is your property's value minus what you still owe on your mortgage. If your home is worth £320,000 and your mortgage balance is £190,000, you have £130,000 of equity, although no lender will let you borrow against the full amount of it.

Most secured loan lenders will lend up to somewhere between 75% and 90% of your property's value in total, combining your existing mortgage and the new secured loan. Using the example above, a lender comfortable up to 85% loan to value in total would allow combined borrowing of £272,000, which, after deducting the existing £190,000 mortgage, leaves up to £82,000 potentially available as a secured loan, subject to passing the affordability check. Every lender sets its own maximum, which is one reason comparing several lenders tends to beat approaching just one.

Affordability is assessed separately from equity: lenders look at your income, your current outgoings once the new payment is added, and your credit history, to check the new payment is realistically manageable rather than just theoretically possible. A default, a missed payment or a CCJ on your file doesn't rule you out on its own, there are specialist secured loan lenders who work specifically with homeowners who have a less than perfect credit history, usually at a rate that reflects the extra risk they're taking on. Our bad credit hub covers this in more detail if that applies to you.

Property type and location can also play a part. Flats, ex-council properties and homes above commercial premises sometimes see a slightly lower maximum LTV from some lenders, while a standard freehold house in a typical residential area tends to face fewer restrictions. If you're self-employed, a lender will usually want to see a couple of years of accounts or tax returns rather than payslips, which can take a little longer to gather but doesn't stop you from being considered. None of these factors are disqualifying on their own, they simply narrow down which lenders on the market are the right fit for your situation, which is exactly the kind of thing a broker sorts through before putting an application in front of a lender.

Numbers help more than percentages on their own. Here's an illustrative example of how a secured loan can change your monthly outgoings if you're using it to consolidate existing unsecured debt.

In this example, the monthly outgoing falls from £663 to £228, a reduction of £435 a month. But the total repayable over the 15-year term, £41,040, is more than the £24,000 originally borrowed, because the term is longer than the original credit agreements would have run. That's the trade-off in plain terms, and it's worth weighing up properly rather than looking only at the monthly saving. If your budget allows it, checking whether the lender permits overpayments without penalty, commonly up to 10% of the balance a year, is one way to bring the total cost down without committing to a higher contractual payment from day one.

A secured loan isn't the only way to borrow against your home, and it isn't always the cheapest, so it's worth seeing it next to the alternatives before you decide. Remortgaging replaces your whole mortgage with a new, larger one; rates are often lower than a secured loan's, but if you're still tied into a fixed deal, the early repayment charge to leave it early can run to several thousand pounds, which can easily outweigh the saving. A further advance means borrowing more from your existing mortgage lender on top of what you already owe them, usually at their standard further borrowing rate rather than your deal rate; it avoids remortgage fees and sometimes an early repayment charge, but not every lender offers it, and not every lender allows it for debt consolidation specifically.

An unsecured personal loan keeps the borrowing off your property altogether, which some homeowners prefer on principle, whatever the numbers say. The trade-off is that unsecured lenders cap how much they'll lend, often well below what a secured loan could offer, and the rate is usually higher because the lender has less security if you can't repay. For smaller amounts, typically under around £25,000, an unsecured loan is worth comparing directly against a secured loan, because the fees involved in a secured loan (valuation, legal work, lender or broker fees) can sometimes cancel out the rate saving once you add them up.

None of these four routes is automatically the best one. The right choice depends on your existing mortgage deal, how much equity you have, how much you want to borrow, and your credit history, and it can genuinely change from one homeowner's situation to the next. That's exactly what a whole-of-market broker is there to compare for you, rather than assuming a secured loan is the answer before checking what the alternatives would actually cost.

As a rough guide to where each route tends to fit: homeowners mid-way through a fixed rate they want to keep often lean towards a secured loan or a further advance, since both leave the existing mortgage untouched. Homeowners whose fixed rate has already ended, or who want everything under one lender and one payment, often find a remortgage the simpler route, provided the new rate and fees stack up. And homeowners who only need a smaller amount, or who would rather not add any borrowing to their property at all, are usually better served comparing unsecured loan rates first. These are starting points rather than rules, and your own numbers should always be the deciding factor.

Before you go ahead with any secured loan, a few questions are worth asking, and a good broker should be happy to answer all of them clearly and without hedging. Is the rate fixed or variable, and for how long? Is there an early repayment charge if you want to clear the loan early, and if so, how much is it? Can you overpay without penalty, and if so, up to what percentage a year? What fees are included, valuation, legal, broker or lender arrangement fees, and are any of them added to the loan itself rather than paid upfront?

It's also worth asking what happens if your circumstances change, if you lose income, or if rates move against you on a variable deal. Because the loan is secured against your home, missing payments is a more serious matter than missing an unsecured credit card payment: your home may be repossessed if you do not keep up repayments on a mortgage or any other loan secured on it. A responsible lender and broker will talk you through this honestly rather than glossing over it, and if you're at all unsure whether the new payment is affordable, it's worth speaking to a free debt advice charity before signing anything, we've listed some further down this page.

Shopping around matters more with a secured loan than with most other borrowing, because rates and terms vary significantly between lenders depending on how each one views your circumstances. Comparing a handful of secured loan lenders side by side, rather than accepting the first offer that comes back, is usually where the real saving is found, and it costs you nothing to check.

It's also fair to ask how your broker is paid. Most brokers in this market are paid a fee by the lender once a loan completes, rather than charging you directly, though some also charge a separate broker fee, which should always be disclosed clearly upfront rather than buried in the paperwork. Understanding how the recommendation in front of you is being paid for is a reasonable question, and a broker worth using won't mind being asked it.