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Secured loans explained
A secured loan lets you borrow against the equity in your home, often at a lower rate than unsecured borrowing. Here's how they work, what they cost, and how to tell if one is right for you.
A secured loan is borrowing secured against an asset you own, almost always your home. It sits alongside your existing mortgage as a "second charge", rather than replacing it. Your mortgage lender is repaid first if your property is ever sold to cover debts; the secured loan lender is repaid second.
Secured loans are also called second charge mortgages, homeowner loans, or second mortgages. Because your property is used as security, missing repayments could put your home at risk.
A secured loan, also called a homeowner loan or second charge mortgage, is a way of borrowing money that uses your home as security. Secured loans can offer access to larger amounts and longer repayment terms than unsecured borrowing, because the lender holds your property as collateral if you don't keep up repayments.
A secured loan sits alongside your existing mortgage rather than replacing it. Your mortgage lender holds the "first charge" over your property, meaning they're repaid first if your home is ever sold to cover debts. A secured loan lender takes a "second charge", so they're repaid after your mortgage lender is satisfied. This is why secured loans are also known as second charge mortgages, homeowner loans, or second mortgages - the terms all describe the same product.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
If you're worried about existing commitments or aren't sure whether secured borrowing is right for you, free and impartial guidance is available from MoneyHelper on 0800 138 7777.
Once your mortgage lender consents to the second charge, a solicitor registers it against your property. From completion, you make monthly payments for the agreed term. If you sell your property before the loan is repaid, both your mortgage and the secured loan must be cleared from the sale proceeds, with the mortgage repaid first.
How it works
From your first enquiry to funds landing in your account, here's what to expect at each stage.
Initial enquiry and eligibility check
You share basic information about your property value, mortgage balance, income and what you want to borrow. A soft credit check gives an early indication of your options without affecting your credit score.
Full application and documentation
If you decide to proceed, you complete a full application and provide supporting documents, such as payslips or accounts, bank statements, proof of identity and address, and details of your existing mortgage.
Valuation
The lender confirms your property's value, either through a desktop valuation using recent sales data or a physical survey visit, to make sure there's enough security for the loan.
Underwriting
An underwriter reviews your affordability, the property, and your credit profile against the lender's criteria. They may ask follow-up questions about large deposits, income, or past credit issues.
Offer and acceptance
If approved, you receive a formal offer setting out the loan amount, term, whether the rate is fixed or variable, and any conditions. Read it carefully and ask an advisor about anything you're unsure of.
Legal completion
A solicitor registers the second charge against your property with the Land Registry and confirms your mortgage lender consents to it. This is a standard part of the process.
Funds release
Once legal work is complete, funds are usually released to your account within a couple of working days. If you're consolidating debts, some lenders can pay creditors directly.
Secured loans come in several forms, each suited to different circumstances and preferences. Understanding the differences helps you have a more informed conversation with an advisor about which fits your situation.
The interest rate stays the same for a set period, often 2, 5 or 10 years, so your monthly payment doesn't change during that time. This suits borrowers who value budgeting certainty. After the fixed period ends, the loan usually moves to the lender's variable rate, and some borrowers choose to refinance at that point.
The interest rate can move up or down, typically in line with the Bank of England base rate or the lender's own standard variable rate. Payments can fall when rates fall, but they can also rise. This suits borrowers who are comfortable with some uncertainty, or who may want to repay early without an early repayment charge.
Some lenders let you split your borrowing between a fixed and a variable rate, for example fixing part of the loan for several years while leaving the rest variable. This offers a middle ground between certainty and flexibility.
With an interest-only secured loan, your monthly payments cover only the interest, and the capital you borrowed remains outstanding until the end of the term, when it becomes due in full. This keeps monthly payments lower, but you need a credible plan to repay the capital, such as a planned property sale, maturing investments, or regular overpayments. If your repayment strategy falls through, you could face serious financial difficulty or the loss of your home.
Not sure which type suits you
Every secured loan works differently. An advisor can talk through your circumstances and compare options from a wide range of lenders.
Lenders assess secured loan applications against several criteria. Understanding these requirements helps you gauge your chances of approval and prepare before you apply.
Your loan-to-value (LTV) ratio compares your total borrowing, mortgage plus secured loan, to your property's value. Most mainstream lenders cap total LTV at 75-85%, meaning you need at least 15-25% equity remaining once the secured loan is added. Specialist lenders may stretch further for strong applications.
Example: a property worth £275,000 with a £125,000 mortgage has £150,000 of equity, putting the owner at around 45% LTV on the mortgage alone. Borrowing a further £50,000 would take total borrowing to £175,000, around 64% LTV, comfortably within most lenders' limits.
Lenders need to be confident you can afford the new payment alongside your existing commitments, and must carry out a reasonable assessment of affordability before lending. This typically looks at your gross income, minus your mortgage payment, other credit commitments, and estimated living costs, with a buffer built in for potential rate increases.
Most income types are accepted, including employed salary, regular overtime, bonuses and commission, self-employed income, pensions, rental income, and dividend or investment income, though how each is assessed varies between lenders.
There's no single minimum credit score. Lenders look at your full credit history rather than a score in isolation. Generally, the stronger your credit history, the wider your choice of lenders. If you have a poor credit history, including CCJs or defaults, secured loans tend to be more accessible than unsecured borrowing, because the property gives the lender security. What matters most is how old any credit issues are, whether they're satisfied, and your overall pattern of financial behaviour since.
Your property needs to provide adequate security for the loan. Standard construction houses and flats in mainstream locations qualify with most lenders. Non-standard construction, such as timber frame, concrete or steel frame properties, properties above commercial premises, high-rise flats, and ex-local authority properties, may face restrictions or need a specialist lender.
Lenders calculate loan-to-value using your total borrowing, not just the new loan. Work out your existing mortgage balance against your property's current value first - it gives you a realistic sense of how much room you have before you speak to an advisor.
Self-employed applicants can access secured loans, but income verification works differently to employed borrowers. Sole traders and partnerships typically need 2-3 years of tax calculations (SA302s) and corresponding tax year overviews, alongside business bank statements. Limited company directors typically need 2-3 years of company accounts, tax returns, and evidence of the salary and dividends they've drawn.
Most lenders use the average of your last 2-3 years' income, or the latest year if your income is rising. Directors are usually assessed on salary plus dividends actually drawn, rather than overall company profit, though this varies between lenders, which is where an advisor's knowledge of different lenders' criteria can help. See our guide to self-employed secured loans for more detail.
Past credit problems don't automatically rule out secured lending, though they'll affect your options and the lenders available to you.
Specialist adverse credit lenders exist specifically to serve borrowers mainstream lenders decline. If you've been declined, avoid making repeat applications, as each hard credit search can affect your file further - an advisor can identify suitable lenders before you apply. Read more in our guide to secured loans with bad credit.
Most lenders require you to be at least 18, and younger borrowers with a shorter credit or employment history may find their choice of lender more limited. At the other end, many mainstream lenders set a maximum age of around 70-75 at application, though specialist later-life lenders accept applicants well beyond this, provided pension or other retirement income can support the payments.
Some properties and situations need specialist handling: non-standard construction (timber frame, concrete or steel frame), properties with short leases below 70 years remaining, high-value properties, properties above commercial premises, agricultural land, and portfolios of multiple properties. None of these automatically rule out a secured loan, but they typically mean a smaller pool of suitable lenders.
Secured loans can be used for almost any legal purpose. Some uses are particularly common and well-suited to this type of borrowing because of the amounts and terms involved.
Industry data suggests a majority of second charge mortgage borrowers use secured loans wholly or partly to consolidate debt. Combining several debts into one payment can reduce monthly outgoings, but it's worth thinking carefully before securing previously unsecured debts against your home.
Spreading debts that might have cleared in 3-5 years over a much longer secured term can mean paying more in total, even at a lower rate. You're also converting unsecured debt, where the consequences of non-payment are financial, into secured debt, where your home is at risk. Consolidation tends to make most sense if you're genuinely struggling with current payments, rather than simply seeking a lower monthly figure. Our guide to secured loan debt consolidation covers this in more depth.
What secured loans are used for
Understanding the full cost of a secured loan, not just the headline rate, helps you compare options accurately and avoid surprises. Costs generally fall into three categories: setup costs, ongoing costs, and potential exit costs.
Your monthly payment is the main ongoing cost, made up of interest and, unless you've chosen interest-only, a portion of the capital. The amount depends on your loan-to-value, credit profile, term and the lender you choose - speak to an advisor for an up-to-date, personalised figure.
If you're struggling with repayments on any loan secured against your home, contact your lender as early as possible. Lenders must consider reasonable forbearance options for customers in genuine difficulty under Financial Conduct Authority rules. Free, impartial guidance is also available from MoneyHelper on 0800 138 7777 or moneyhelper.org.uk.
The upside
You've just seen the key advantages above. Making an informed decision also means weighing these against the genuine risks, so here's an honest look at the disadvantages too.
A secured loan might suit you if you have equity of at least 15-25% in your property, a clear plan for using the funds, stable income that comfortably covers the new payment, and you want to preserve your existing mortgage rate.
Consider alternatives if you're borrowing less than £10,000 (fees make a secured loan expensive for small amounts), you might sell your property in the next few years, you're already stretched on monthly commitments, your job security is uncertain, or a remortgage would offer better overall terms.
A secured loan isn't the only way to borrow against your home, or to access a lump sum as a homeowner. Understanding how it compares to the alternatives helps you choose the right option.
A remortgage replaces your entire mortgage with a new, larger one, releasing equity as cash. A secured loan sits alongside your existing mortgage without changing it.
A remortgage is usually worth considering if your current mortgage rate is no longer competitive, your fixed period is ending anyway, or you're borrowing a large amount where the difference in rate matters. A secured loan tends to make more sense if you want to keep a strong existing mortgage rate, would face an early repayment charge on your mortgage, or need funds more quickly than a remortgage allows. Our guide comparing a secured loan vs remortgage covers this in detail.
A further advance is additional borrowing from your existing mortgage lender, added to your mortgage rather than arranged as a separate loan. It's often simpler, with lower arrangement costs and no separate valuation or legal fees, and usually applies a rate close to your existing mortgage. The downside is that not all lenders offer them, they can extend your mortgage term, and the amount available may be limited.
Unsecured personal loans don't require property security, so they're generally simpler and faster to arrange, but come with lower borrowing limits and shorter terms. A secured loan tends to make sense once you're borrowing above the level unsecured lenders will offer, want a longer term to reduce monthly payments, or want to consolidate several debts into one payment. An unsecured loan is usually the better choice for smaller amounts, where you want no risk to your property, or where you need funds very quickly.
Work through a few questions with an advisor: how much do you need to borrow, what's your current mortgage rate and how long is left on any fixed deal, how would lenders view your credit profile, and how quickly do you need the funds. The answers usually point clearly towards one option.
If you're considering a secured loan, here's what typically happens once you get in touch, and the ways you can start a conversation.
An advisor gathers information about your circumstances and runs a soft credit check, which doesn't affect your credit score. They then compare options from a wide range of lenders, present the choices clearly, and, if you decide to proceed, guide you through the application, working with the lender and solicitor until funds arrive in your account.
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Common questions
A secured loan is borrowing that's secured against an asset, typically your property. It differs from your mortgage in that it sits alongside your existing mortgage as a second charge rather than replacing it. Your mortgage lender holds the first charge and gets priority if the property is sold to repay debts; the secured loan lender holds the second charge and is repaid after the first lender is satisfied.
Yes, most secured loan borrowers have existing mortgages. What matters is that you have sufficient equity, meaning the difference between your property's value and your outstanding mortgage. You typically need at least 15-25% equity remaining after the secured loan is added.
A remortgage replaces your entire existing mortgage with a new, larger one. A secured loan adds to your mortgage without changing it. Secured loans suit homeowners who want to keep their existing mortgage rate, avoid early repayment charges on their mortgage, or need funds more quickly than remortgaging allows.
Your mortgage payments and terms remain unchanged. However, your mortgage lender must consent to a second charge being placed on the property, which is a standard process handled by the solicitor. Some mortgage lenders have conditions about total borrowing levels.
The loan must be repaid from the sale proceeds. If you're within an early repayment charge period, you'll pay that too. If your sale price doesn't cover your mortgage plus secured loan, which is rare but possible in a property price downturn, you'd still owe the shortfall.
Yes, secured loans can fund business investment, though the loan itself is regulated as consumer lending since it's secured on your home. Some lenders have restrictions on business use, so it's worth declaring your intended purpose clearly during the application.
There's no single minimum credit score that applies across all lenders. Mainstream lenders typically look for a solid credit history, while specialist lenders on our panel consider applications from people with past defaults or other credit issues. Your credit profile affects the rate you're likely to be offered as well as which lenders will consider your application.
Yes. Secured loans are often more accessible with impaired credit than unsecured borrowing, because the property security reduces lender risk. The age and satisfaction status of any credit issues matter most - recent, unsatisfied CCJs are more challenging than older, satisfied ones.
This depends on your property equity, income, and affordability. Most lenders offer between £10,000 and £500,000. Your maximum is typically 80-90% of your property's value minus any existing mortgage, subject to you being able to afford the repayments.
Yes. You'll typically need 2-3 years' accounts or SA302 tax calculations, though some lenders accept one year's trading with strong figures. Limited company directors need evidence of salary and dividends drawn, and income assessment methods vary between lenders.
Many mainstream lenders set maximum ages of around 70-75 at application. However, specialist later-life lenders accept applicants well beyond this. The key is demonstrating that income, including pensions, can support the payments.
Yes, some lenders offer secured loans against investment properties. Terms are typically less favourable than for residential properties, and you'll need to demonstrate sufficient rental income or other earnings to support the payments.
Costs typically include arrangement fees (often 1-3% of the loan amount), valuation fees, legal fees, broker fees if applicable, and monthly interest payments over the term. The total cost varies significantly depending on the loan amount, term and rate you're offered, so ask an advisor for a personalised figure before you commit.
Most fixed-rate secured loans have early repayment charges (ERCs), which are highest in the early years and reduce over time. Variable-rate loans often have lower or no ERCs. Always check the specific terms before committing, especially if you might sell your property or repay early.
Often yes, but doing so means you'll pay interest on the fee for the life of the loan, increasing the total amount repaid. If you can afford to, paying fees upfront is usually cheaper overall.
The interest rate is the basic cost of borrowing. The Annual Percentage Rate (APR) includes the interest rate plus mandatory fees, showing the true annual cost. The APRC (Annual Percentage Rate of Charge) used for mortgages and secured loans assumes the rate continues for the full term. Always compare APR or APRC, not just interest rates.
Both options exist. Fixed rates stay the same for a set period, typically 2-10 years, then usually switch to a variable rate. Variable rates move with market conditions, typically tracking the Bank of England base rate. Fixed rates provide certainty; variable rates offer potential savings if rates fall.
From application to receiving funds typically takes three to six weeks. Initial decisions often come within 24-48 hours, but valuation, underwriting, and legal work add time. Complex cases, such as non-standard properties, self-employment, or adverse credit, may take six to eight weeks.
Typically you'll need proof of identity, proof of address, a few months' bank statements, proof of income (payslips for employed applicants, accounts or tax calculations for self-employed applicants), details of your mortgage, and details of all the debts you want to consolidate. Your advisor will confirm exactly what's needed for your specific application.
Initial eligibility checks use a soft search that doesn't affect your credit score. A hard search only appears on your credit file if you go ahead with a full application. Multiple hard searches in a short space of time can temporarily lower your score, which is one reason it helps to use a broker who can check eligibility across several lenders with a single soft search.
Yes, most brokers and lenders accept online applications. You'll typically complete initial enquiry details online, then provide documentation by email or secure upload, though some lenders still require wet signatures for legal documents.
Personal loans are unsecured, meaning they don't require property security. Secured loans use your home as collateral. Personal loans offer smaller amounts, typically up to £25,000, over shorter terms of 1-7 years. Secured loans offer larger amounts, often up to £500,000 or more, over longer terms of up to 30 years, and typically have lower interest rates but put your home at risk.
Consider remortgaging if your current mortgage rate is higher than available remortgage rates, if your fixed period is ending anyway, or if you're borrowing a large amount where the rate difference matters significantly. A secured loan tends to suit those who want to preserve an excellent existing mortgage rate, avoid early repayment charges on their mortgage, need funds quickly, or have circumstances that make remortgaging difficult.
Generally yes, particularly for larger, long-term borrowing, since secured loans usually charge lower rates than credit cards. However, credit cards offer flexibility and interest-free periods that secured loans don't. For large, planned borrowing over several years, a secured loan is often the cheaper route - speak to an advisor to compare your options.
Generally, using savings is cheaper since you avoid interest costs. However, maintaining an emergency fund matters too. Some people prefer keeping savings accessible while spreading large expenses through borrowing instead - it's worth weighing the interest you'd earn on savings against the interest you'd pay on borrowing.
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