Learnbonds UK

Best Homeowner Loan Providers & Sites in 2019

14. January 2020

As is the case with all loan types currently active in the UK market, homeowner loans come with their pros and cons. On the one hand, you are not only likely to improve your chances of being approved for a loan by putting your home up as collateral, but you’ll also benefit from a much more favourable rate of interest. However, you need to make some serious considerations about whether or not you can afford to pay the loan back, not least because you could lose your home if you end up defaulting.

With that being said, we have created the ultimate guide to the Best Homeowner Loans in the UK. Before we unravel the best three providers, we will give you a full breakdown of what a homeowner loan actually is, how they work, and what you need to look out for. By the end of reading our guide from start to finish, you’ll be able to make an informed decision as to whether or not a homeowner loan is right for your individual needs.

Note: Once again, you stand the very real risk of losing your home if you end up defaulting on your homeowner loan. You need to make absolutely sure that the loan package is affordable before proceeding.
Pros and cons of homeowner loans

The Pros

  • Borrow a certain percentage of the equity in your home
  • Improve your chances of approval by putting your home up as security
  • Benefit from more competitive APR rates
  • Loans can be obtained in less than two weeks
  • LTV ratios of up to 95%

The Cons

  • Failure to repay your loan could result in your home being repossessed

How does a homeowner loan work? Read our step-by-step guide

While many of the specifics found in a traditional loan remain constant with that of a homeowner loan, the amount that you can borrow is usually dictated by the value of your property. This is similar to how an auto loan will take the value of your car or motorbike into account when deciding how much you can borrow.

Nevertheless, as homeowner loans can be a somewhat complex battleground for newbies, we have outlined the general step-by-step process below.

Step 1: Find a trusted homeowner loan provider

Firstly, you will need to find a homeowner provider that meets your individual needs. Ideally, you are looking for a lender that will offer enough money to cover your requirements, and at the best possible APR rates. Moreover, you also need to explore what Loan-to-Value (LTV) ratio the provider is willing to offer. Don’t worry, we’ll cover the ins and outs of the LTV shortly.

Ultimately, the easiest way to find the best homeowner loan providers is to scroll down to the bottom of this page – whereby we list the best 3 issuers currently in the UK market.

Step 2: Enter details about your home

Once you have found your chosen homeowner loan provider, you will then need to enter information pertaining to your property. This will include the full address of the home, and the specific name of the owner – which needs to be yourself.

The homeowner loan platform will then use the information you entered against the third-party sources it uses to determine how much your home is currently worth. While the figure will not be an exact science, it will be there or thereabouts. Once the system has done its checks – which should take no more than a couple of minutes, you will then be advised how much the provider believes the property is worth.

Step 3: Enter your personal and financial information

In the next stage of your application, you will need to provide the loan provider with some personal information. This is no different to any other credit-based product, and will typically include your full name, home address, previous addresses, date of birth, residency status, email address, and home telephone number. Next, you will then need to enter some information about your income.

This will include your employment status, monthly income, name and address of your employer, and how frequently you get paid. You also need to enter some information about your current debts. If you hold any outstanding balances – regardless of the type of credit product, then you will likely need to enter this within your application.

Note: If you’re wondering why you need to enter details regarding your income and current debt levels – even though you are putting your home up as security, this is because the lender will need to determine how much they are comfortable lending you, and at what rate.

Step 4: Assess your LTV

In the case of homeowner loans, the amount that you can borrow is usually determined by the LTV. For those unaware, this is the percentage of your home’s value that you can borrow. The specific amount will not only vary from lender-to-lender, but it will also be based on your individual financial profile. This is why you are required to enter information about your identity, income, and debt – so that lenders can assess your creditworthiness.

Here’s a quick example of how the LTV works with respect to homeowner loans.

  1. The loan provider believes that your home is worth £200,000
  2. The loan provider believes that you have an excellent credit rating
  3. As such, the loan provider will offer you an LTV of 80%
  4. This means that you can borrow up to 80% of your home’s value – which at £200,000, amounts to £160,000.

In layman terms, the higher your LTV, the more that you can borrow.

Step 5: Choose your loan term and assess the APR

Once you have received your LTV percentage, you will then get to enter how much you want to borrow. To clarify, you cannot borrow more than what the LTV specifies. Nevertheless, once the amount has been ascertained, you then need to determine how long you want to borrow the funds for. It is important to note that at this stage of the application, you will have already had your creditworthiness evaluated by the lender, meaning that you can view how much interest that you need to pay on the homeowner loan.

However, the amount is likely to vary depending on how long you want to borrow the money for. For example, the longer that you decide you need to pay back the loan, the higher the APR is likely to be. As such, spend some time thinking about how quickly you can pay the loan back without it impacting your day-to-day expenses.

Step 6: Sign the digital loan agreement

Once you are happy with the loan amount, APR rate, and the length of the term – you will then need to sign a digital loan agreement. Before you do this, you will need to enter your bank account details. This is not only the bank account that you wish to have the loan funds paid into but also the bank account that you will be making your repayments from.

Don’t forget, you will need to set-up a direct debit agreement, which will ensure that you always make your repayments on time. This will be for a fixed amount each month, with the funds typically taken on the same date.

Nevertheless, to complete the homeowner loan application, you will then need to sign a digital loan agreement. Once you do, the lender will then complete their final checks before forwarding the loan funds on to you. Unlike a conventional loan provider – which can usually forward the funds on to you within a couple of days, homeowner loans can take up to 2 weeks. This is because of the sheer size of the loan, and the fact that you are putting your property up as collateral.

Best 3 homeowner loan providers

If you have read our homeowner loan guide up to this point, then we hope that you know have a full grasp of what a homeowner is, how they work, and what you need to look out for. If you think that a homeowner loan suits your personal financing needs, then we are now going to discuss three of the best providers that are worth considering.

Before we list our recommended providers, here’s a breakdown of what we typically look for in a homeowner loan lender.

Criteria used to rank the best homeowner loan providers

❓Lenders with the most competitive interest rates

❓How much the lender is able to offer

❓What LTV ratio the lender offers

❓What loan terms are available

❓What the default process is

1. Ocean Finance – Borrow between £10,000 - £100,000

On top of mortgages, personal loans and credit cards, Ocean Finance is a third-party homeowner loan platform that aims to match you with lenders. In this sense, the provider is not a direct lender. On the contrary, they simply assess your financial circumstances before passing your data on to the lenders within its network. Nevertheless, the platform facilitates homeowner loans of between £10,000 and £100,000, which is huge.

Furthermore, the platform allows you to search for homeowner loan offers on a soft-credit basis, meaning that the application will not have a detrimental impact on your credit score. In terms of the fundamentals, Ocean Finance explains that the homeowner loan lenders within its network will charge anywhere from just 2.6% APRC (Annual Percentage Rate of Charge), all the way up to 26.4% APRC.

Key Points:

? Homeowner loans of between £10,000 and £100,000

? Advertised APRC interest rates of between 2.6% and 26.4%

? Soft-credit enquiry – applying won’t hurt your credit score

? Not a direct lender

? Loan terms of between 18 and 60 months

2. Arrow Loans – Loan size judged on a case-by-case basis

If you’re instead looking for a direct lender, then it might be worth enquiring with Arrow Loans. The UK homeowner provider was first established way back in 1957, meaning that it has more than 60 years’ worth of experience in the UK lending arena. The representative rate offered by Arrow Loans is 19.9% APR, although this is just for illustrative purposes. In other words, you could pay more or less than this. The lender notes that 51% of its homeowner loan applicants are successful, and you can usually complete the vast bulk of the application process online.

In order to be eligible for an Arrow Loans homeowner loan, you will need to be aged between 21 and 68, live in England or Wales, and of course – own the home that you are looking to take out financing against. Finally, the provider also notes that you will likely pay an origination fee of £495 if your application is approved, and the lender allows you to repay your loan early if you have the financial means.

Key Points:

? Homeowner loan amount considered on a case-by-case basis

? Representative rate of 19.9% APR

? An origination fee of £495 if approved

? Is a direct lender

? Established way back in 1957

3. Shawbrook Bank – Borrow between £10,000 - £500,000

Founded as recently as 2011, Shawbrook Bank is a UK-based financial institution that serves both retail and commercial customers. In a nutshell, the bank is offering a headline APRC rate of 4.1%, which is very competitive. However – and once again, there is no guarantee that you will get this rate, as the lender will look at your creditworthiness. Nevertheless, Shawbrook Bank offers a maximum LTV of 65%.

This means that if your home was worth £200,000, you would be able to borrow up to £130,000. The minimum and maximum loan amount that the lender is happy to facilitate equates to £10,000 and £500,000 respectively. In terms of the length of the homeowner loan, this starts at just 3 years, up to a maximum of 25 years.

Key Points:

? Loans of between £10,000 and £500,000

? Headline rate of 4.1% APRC

? Maximum LTV of 65%

? Loan term of between 3 years and 25 years

? Direct lender

What is a homeowner loan?

In its most basic form, a homeowner loan is a type of secured loan whereby you put your home up as collateral. Otherwise referred to as a ‘home equity loan’, a homeowner loan will base your loan package on the specifics surrounding the value of your property. On top of the property’s value, homeowner loan lenders will also look at your individual credit profile when assessing how much to lend you and at what rate.

However, by putting your home up as security, you will not only improve your chances of being accepted for the loan, but it is also likely to come with a better rate of interest than what you would have obtained with a traditional personal loan.

As is the case with all loan types, you will be required to pay interest on your homeowner loan for as long as the loan is outstanding, and you will likely incur fees if you are late with your repayments. However, the key difference with a homeowner loan in comparison to unsecured loans is that you could lose your property if you end up defaulting.

What if I still have a mortgage?

If you are still paying your home off in the form of a mortgage, you are still likely to be considered for a homeowner loan. However, the key difference is that the lender will need to assess how much equity you have in your home. For those unaware, the amount of equity refers to the amount of money you have paid into the home, in relation to the size of your outstanding mortgage.

As the specifics can be quite complex for first-timers, here’s a quick example to clear the mist.

  1. Your home is worth £300,000 as per the latest market valuation
  2. When you originally bought the home, it was worth £200,000, which is the same amount that you took out in the form of a mortgage
  3. Since then, you have paid a total of £150,000 off your mortgage
  4. This means that you still have £50,00 to pay
  5. We then need to subtract this £50,000 from the current market value of your home, which is £300,000
  6. This means that your equity is £250,000 (£300,000 – £250,000)

How much will a homeowner loan cost?

In terms of how much you are likely to pay, this will be determined by a range of contributing metrics. In fact, this is no different from any other loan application. Here’s a breakdown of the main metrics that lenders will look for when deciding how much to charge you.

✔️ Size of the loan

✔️ How long you want to borrow the funds for

✔️ Your current credit score

✔️ Your previous relationship with debt

✔️ How much equity you have in your home

✔️ How much your home is worth at present

Can I lose my home if I default?

The simple answer to this is ‘yes’. After all, you are putting your home up as collateral, so you do face the very real risk of losing it in the event that you default. However, the process of actually losing your home is an extremely long one, and it is super costly for the lender. This isn’t to say that the lender won’t proceed with the process of repossession, especially taking into account the sheer size of the amount owed.

Most importantly, if you do miss a payment, you will likely incur a late payment fee, with interest being added to the fee itself. However, if that single late payment turns into multiple missed payments, this is the point that the lender is likely to take action against your home. This is why the risks of homeowner loans are so much higher than a conventional personal loan. If you are able to obtain the latter at a reasonable rate of interest, then this is most likely the best option.

FAQ

Am I guaranteed to get a homeowner loan?

If you are currently a homeowner with all, or most, or your mortgage paid off, then there is a very good chance that you will be accepted. This is because the lender knows that your home can be repossessed in the event that you default, so the acceptance rates are significantly higher in comparison to personal loans.

What are the benefits of a homeowner loan?

The overarching benefits of choosing a homeowner loan as opposed to a traditional personal loan is that you stand a much better chance of being approved. Moreover, you will often find that you are able to borrow the funds for much longer, and at a much more competitive rate of interest.

How much am I able to borrow with a bad credit lender?

This is usually based on the LTV that the lender is able to offer you, which simply equates to the amount of funds available in comparison to the value of your property. For example, if your property is worth £150,000 and the lender offers you a maximum LTV of 50%, this means that you can borrow up to £75,000.

How long does it take to apply for a homeowner loan?

As is to be expected when you take the sheer complexities and size of a homeowner loan into account, the process can actually take up to 2 weeks - sometimes longer. The lender will need to perform a significant amount of checks on you as the borrower, as well as on the property that you are looking to put up as collateral.

Will I need to upload any documents?

Unlike a personal loan - which usually allows you to obtain the funds once your information has been electronically verified, homeowner loans come with much more red-tape. Most specifically, you will need to upload the required documents that proves you are the rightful owner of the property in question.

Kane Pepi

Kane holds academic qualifications in the finance and financial investigation fields. With a passion for all-things finance, he currently writes for a number of online publications.