Secured loans / second charge mortgages have gained popularity since the 1960’s when they started being advertised as a borrowing option to the general public. Known as either a ‘secured loan’ or a ‘second charge mortgage’ they are now regulated by the Financial Conduct Authority in the same way as the mortgage you might take out to buy your home. As a result borrowers now get much greater protection when applying for a secured loan / second charge mortgage.
Just like a mortgage, a secured loan is secured on your property – hence the name. Details of the loan are registered with the land registry which is known as “registering a charge” on your property. This means that when you sell your house any buyer can see the loans which are secured and can make sure they are paid off – similar to doing an HPI check on a car.
The mortgage used to buy a property is normally the first charge and, when you sell, it has priority to be paid off first. Your secured loan will sit behind the first charge in order of priority and will be repaid from the proceeds of the sale second – hence its other name “second charge mortgage”.
When arranging a secured loan or second charge, one of the most important factors a lender will consider is the amount of equity available in your home. This is the difference between the value of your house and the amount of money you owe which is secured against your home. It is often referred to as the “loan to value ratio” or LTV.