Is a secured loan a good borrowing option for funding home improvements?

Homeowners looking to make home improvements or renovations to their property will often consider remortgaging at a higher loan-to-value (LTV) to release some of the equity in their home to pay for the work. But, with mortgage lenders withdrawing high LTV products from the market in response to the economic uncertainty caused by the Coronavirus pandemic, this option may not be as easily available as before.

Our research has found that there are currently 283 remortgage deals available at an 85% LTV or higher. Of these, 236 are available at an 85% LTV, 38 at a 90% LTV, and just nine at a 95% LTV. In contrast, those looking to remortgage at an 80% LTV have 381 deals to choose from. As a result, those at an 85% LTV and who are looking to borrow additional money when remortgaging could struggle to get a deal and may want to consider a secured loan instead.

A secured loan, sometimes referred to as a second mortgage, is a type of loan that requires the borrower to put security, usually their home, against the loan. While this means that consumers can borrow higher amounts of money compared to a personal loan, usually £20,000 or more, it also comes with the risk of the borrower losing their home if repayments are not met. Saying this, for consumers who are confident they can meet repayments, secured loans can be a way of borrowing a significant amount of money without needing to remortgage.

Currently, the lowest rate available in the secured loan chart is 5.8% APRC, which is available from Paragon Personal Finance. But, as with other forms of borrowing, the rate offered depends on the borrower’s credit score. In addition to this, the secured loan deal available will depend on the amount of equity a homeowner has in their property.

As with remortgage deals, there are more secured loan deals available at a lower LTV, but homeowners with just 5% equity in their home can still get a secured loan. Clearly Loans, for example, offers secured loans for homeowners with 90% and 95% LTVs. A full list of the current secured loan deals available can be found on our secured loan chart.

As already mentioned, homeowners looking to borrow additional money when remortgaging at a high LTV may struggle to do so in the current economic climate, however a secured loan may be an alternative option. As well as this, for homeowners in the middle of a fixed term mortgage deal, remortgaging may not be an option at the moment, so a secured loan could enable them to borrow money without paying exit fees on their current mortgage deal.

Before taking out a secured loan, however, consumers should be aware of the risks involved and that if repayments are not kept, they could lose their home. Secured loans should only be considered by consumers who are confident that they will be able to meet the repayments over the term of the loan, which can last from one year to 25 years depending on the type of deal and option chosen. Borrowers should also be aware that the rates on secured loans are significantly higher than current mortgage and personal loan rates.