A common question we hear is: “why shouldn’t my client apply for a further advance rather than a secured loan?” The usual answer to this question is “it depends.”
Below are five of the more common reasons that a secured loan could be the best solution for your client:
1) More cash than a mortgage – One of the most simple, yet lesser-known benefits of secured loans is, simply, the amount of money available. Whereas a mortgage can only raise capital to a maximum 85% of the value of a property, at least one broker is now offering secured loans at an impressive 95% LTV. This difference can equate to upwards of £50,000, which, depending on the purpose of the loan, can make a huge difference.
2) An alternative for entrepreneurs – The reasons for taking out secured loans can overlap with less attainable forms of lending such as business loans. Budding entrepreneurs may wish to explore secured loans as an alternative to the more traditional business loan. Finding the best rate loan for a start-up project is certainly not as simple as heading to the bank. When the potential value of the loan is taken into account as in point 1, the scope for using a secured loan for business is surprisingly broad.
3) Holding on to an interest only deal – In many cases, borrowers living on an interest only mortgage face serious barriers to further borrowing. Many mortgage providers will require their clients to convert interest only mortgages to repayments if they wish to take on further borrowing. Taking a side step and getting a secured loan will preserve this preferred repayment type whilst at the same time saving money – they tend to work out as the cheaper option.
4) Flexibility of credit status – A secured loan is a more individual product. As such, they can often take broader factors into account when considering borrower eligibility. Minor and occasional unsecured credit slips can often be ignored if they appear to be obviously non-relevant to the loan being sought.
5) Avoid sacrificing a good mortgage deal – If clients are enjoying a particularly low standard variable rate for example, or are on a lifetime tracker just 1% above base, then a re-mortgage will mean sacrificing this in favour of a new product rate which is guaranteed to be less favourable. The solution offered by secured loans is simply to leave the existing deal in place and combine it with a separate loan at a rate which is also likely to be preferential to the re-mortgage product rate.
With secured lending now under the remit of the FCA, advisers are obliged by the regulator to consider all the options and provide their clients with the most suitable product for that borrower’s individual needs. Those who were previously less familiar with secured lending will need to ensure that going forwards, they understand when a second charge loan is the best course of action.