Best homeowner loans for 2023
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Homeowners in search of more chunky borrowing – say, upwards of £20,000 – might want to consider a homeowner, or ‘secured’, loan.
This type of borrowing can potentially offer lower rates than unsecured – or ‘ personal’ – loans and may appeal to homeowners who are unable to borrow through a remortgage, perhaps due to high early repayment fees.
Also sometimes referred to as a ‘second charge mortgage’, homeowner loans are secured against the value of a homeowner’s property and are available against repayment terms of up to 35 years.
However, applicants will have to meet some tight lending criteria, including having enough equity in their home and earning a minimum income.
What are the best homeowner loans?
We carried out some research (January 2023) to identify what we consider to be the best homeowner loan providers, looking at interest rates, flexibility around making overpayments, borrowing amounts, and repayment terms. There’s more in our methodology below.
Methodology
To arrive at our star ratings for the best homeowner loan providers, we considered the following:
- Interest rate: based on the lowest interest rates quoted. The actual interest rate charged will depend on an individual’s personal circumstances, including loan-to-value ratio, income and credit score, among other factors
- Repayment terms: the minimum and maximum repayment periods and loan values
- Loan-to-value (LTV): the maximum LTV offered, in other words, the maximum amount that could be borrowed under a mortgage and second charge mortgage combined
- Fees: including product fees, valuation fees and discharge or exit fees (charged on the repayment of the loan)
Other factors: we also considered other differentiating factors such as the ability to make overpayments and early repayments without penalty.
What is a homeowner loan?
A homeowner, or secured, loan is similar to an unsecured personal loan in that it lends a fixed amount of money over a set term. The lender is repaid in monthly instalments, which may be fixed or variable according to the type of interest.
However, homeowner loans are secured against the borrower’s home as an asset, which is not the case with unsecured loans. This means that if the loan is defaulted on, the lender has the right to take possession of the home with a view to selling it.
Homeowner loans can also be referred to as ‘second charge’ mortgages. This means that the original mortgage provider takes priority if the property needs to be sold to pay off either debt. Formal consent is also required from the first mortgage provider, although this is rarely withheld.
For borrowers, homeowner loans are higher risk than unsecured loans. That’s because, if they are unable to keep up with repayments, their home could be repossessed and sold.
On the flipside, however, because the lender has the security of an asset backing the loan, the rate of interest is usually lower than for unsecured personal loans.
What are the alternatives to a homeowner loan?
There are a number of alternatives to consider alongside a homeowner loan. These include:
Remortgaging: Depending on the cost of any early repayment fee, it may be cheaper to remortgage to cover the total amount you’re looking to borrow, rather than taking out a secured loan on top of your existing mortgage
Unsecured personal loan: personal loans lend between £1,000 and £25,000 with some lenders offering larger loan amounts of up to £35,000. The main advantage is that loans won’t be secured against the borrower’s home. Personal loan terms are usually up to five years, although some can be longer
0% purchase credit card: A 0% purchase credit card means the cost of spending is interest-free for up to two years. They can be suitable for one-off major purchases such as a new car but cap lending limits at lower levels than personal loans. Interest will also become payable as soon as the interest-free period ends
0% money transfer credit card: With a money transfer card, it’s possible to move funds from a credit card allocated spending limit into a bank account to pay off existing debts or to put towards future purchases. However, there is usually a transfer fee to pay and, once the 0% deal ends, interest is charged
0% balance transfer credit card: A 0% balance transfer card can help consolidate existing card debts more cheaply as interest is not parable for several months. However, transfer fees and clearing your balance before the interest-free deal ends.
This content has been independently collected by the Evening Standard team and is offered on a non-advised basis. This content is not part of a comparison service provided by our partners. Evening Standard may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations.