Secured Loans in the UK

Last post: Sep 3, 2011

A review of secured loan options in the UK

The term Secured Loan in the UK has a different meaning to the same term in the US. In the US a Secured Loan refers to any loan that is secured by an asset such as a house, car or other personal possession but in the UK the definition is much more narrow and the only security eligible is your house/property. To be even more specific, a UK Secured Loan is a second – not first – charge on a property. That is to say that a Secured Loan can only exists behind a mortgage. If you don't have a mortgage then you can't get a Secured Loan (because then it would be a first charge and be a mortgage). Secured Loans can be extended on private or commercial properties to individuals or businesses. The Secured Loan market in the UK has seen dramatic growth since the start of the credit crunch in 2008 and though this may seem counter-intuitive there are some good reasons for it:
  • Most Lenders are private Lenders, not banks, and therefore they avoided being caught up in the Sub-prime mortgage loans problems. Indeed, many new Lenders have actually entered the market to take advantage
  • There is a dearth of mortgage lending forcing borrowers to look at alternatives to remortgaging or extending their mortgage as they would have done in the past
  • Many Borrowers are on variable rates linked to the Bank of England base rate and are reluctant to remortgage so a Secured Loan becomes a more viable source of finance
  • Many borrowers with poor credit records have only the Secured Loan market in which they can borrow by utilising the equity in their house. This also allows them an opportunity to get credit and rebuild their credit score.
  • Fees on Secured Loans have made it a lucrative market for Brokers and Packagers so the consumer is well served and the Brokers and Packagers are incentivised to promote the product