Homeowner loans – 7 Frequently asked questions


November 8, 2019


Marcus Taylor

As the UK’s leading second charge mortgage lender, we answer seven common questions our customers ask about homeowner loans.

Homeowner loans FAQ

A homeowner loan is secured against a property you own. To qualify you must be a mortgage holder with equity in your home. 

A homeowner loan sits alongside your ‘traditional’ first charge mortgage and means you’ll have two loans secured against your home.

For this reason they are sometimes referred to as a second charge mortgage or a second mortgage.

While the two most common reasons for taking out a homeowner loan are to finance major property improvement or consolidate debt, we also see them used for:

  • Paying for a wedding
  • Deposit on a ‘buy-to-let’
  • Buying a car
  • Holiday
  • School fees

Some customers also use the opportunity to consolidate existing debt alongside their primary reason for taking out the loan

While lenders offer loans between £5,000 and £2,500,000 the maximum amount you can borrow depends on the equity you’ve got in your home, your ability to pay back the loan and the risk to the lender.

To calculate how much they are willing to lend you the lender will assess:

In most cases the applicant will be clear on the amount they want to borrow, e.g. the money they need to finance a home improvement or consolidate their debts.

The major difference is a homeowner loan is secured against your home, while a personal loan isn’t. This means pros and cons for each, depending on your circumstance and credit rating. 

A homeowner loan will typically let you borrow more money, at a lower interest rate with smaller monthly payments than a personal loan. Although you may end up paying more in total as the loan is often agreed over a longer time term. Loans are available for up to £2,500,000. This may make a homeowner loan a good option for financing larger projects such as major home improvements, debt consolidation or a combination of the two.

A personal loan is unsecured so the risk to the lender is greater. This means you may pay a higher interest rate and higher monthly payments and may only be able to borrow up to £35,000. One advantage is your home isn’t under the same degree of risk if you default. But, if you don’t make payments you could incur additional charges, damage your credit rating and/or face a court order. Personal loans are often a good option for borrowing smaller amounts.

Yes, subject to the lender’s policy and your individual circumstances, you can get a loan if you’re self-employed.

With Optimum Credit, self-employed applicants must have been trading for a minimum of three years (or the business must have been trading for a minimum of three years). A suitably mandated underwriter has the discretion to accept a trading period of less than three years if there is a strong rationale for doing so.

You’ll typically need to provide an Accountants Certificate, SA302s, income tax assessments or last two years accounts confirming income.

Whether you choose to take out a homeowner loan or re-mortgage will often depend on the situation with your first charge mortgage.

Taking out a homeowner loan lets you keep your first charge mortgage in place, at its current terms. This may be a good option if you’ve got a great rate and/or a high early repayment charge (ERC).

Re-mortgaging means replacing your current mortgage with a new one. This’ll be subject to new terms and conditions including a different interest rate.

You can take out a homeowner loan either directly with a lender, such as Optimum Credit, or through a broker or intermediary, who’ll recommend a suitable mortgage.

With an advised sale the advisor will assess your individual situation and should only offer you a suitable and affordable product. Typically, when you apply, the lender will run a credit check, carry out a property valuation, need proof of income and assess your monthly outgoings to make sure you can afford the loan.

Talk to us about taking out a homeowner loan

At Optimum Credit, we offer competitive fixed, discounted and variable rate homeowner loans of any amount from £5,000 to £1,000,000. To find out more contact us to talk to one of our fully qualified mortgage advisors.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it

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