So you have decided that a secured loan is a good solution to your borrowing needs. When it comes to taking out a secured loan there are a few documents you will need in order to complete the process. In this article, we will outline what those items are, and provide some tips on how to obtain them. So if you’re ready to take the plunge into secured lending, keep reading!
What is a secured loan?
A secured loan, or homeowner loan, is very similar to a mortgage and it requires a legal charge to be registered against your property. With this in place, if you don’t keep up the monthly payments, the lender could take back your home. It’s important to note that this type of loan is not available if you are a tenant, as the legal charge needs to be against an owned property.
You use this type of loan to borrow against the equity in your home.
The money can be used for any purpose, with most people spending it on home improvements or to consolidate other debts.
A second charge mortgage is another name for a second charge loan, secured loan and homeowner loan. There are lots of terms that all mean the same thing.
It is a loan which is secured on property using a second charge, the first charge being the original mortgage. The lender can seize your property and sell it to repay the debt if you default on a loan secured in this way.
The lenders will receive their money back in the order that corresponds with the charges on the repossessed property. First in line for a payoff will be the main mortgage lender. Any remaining funds will then be available for the secured loan lender holding a second charge.
For this reason, it is important to make sure you can comfortably afford the monthly repayments before taking out a secured loan.
Another way of borrowing more money without affecting the main mortgage is a further advance. This is borrowed from your existing lender. The advantage of this is that it can usually be approved quite quickly. However, you will need to pass the underwriting and affordability checks, using your current circumstances. It’s a good idea to compare the two together to see which is the most viable. We explore second charge Vs further advance in a separate article.
What information does a secured lender need to know?
Before taking out a new loan, lenders will assess your application to check that you can afford the repayment amounts. Therefore, you should be prepared to provide evidence of income and expenditure.
This information typically includes: details about your job; proof of income (such as your last six months’ payslips) and evidence of other sources of income (such as investments); and evidence of your outgoings, such as rent payments, utility bills and credit card statements.
Lenders will also conduct a credit check to assess your financial situation. In addition, they will need to obtain copies of your bank statements from at least the last three months. It is important to remember that a good credit score can help to increase your chances of being approved for a loan, whereas a poor one may mean you won’t be eligible at all.
What documents do I need to provide?
When applying for a secured loan in the UK, you will need to provide several documents to prove your identity and financial situation.
For most applications, you will need:
Proof of your identity
Proving your identity is essential for any loan application. You will need to provide your passport, driver’s licence or other valid form of identification.
This applies to all applicants over the age of 18.
Proof of your address
You will need to provide a proof of address, such as a utility bill, credit card statement or bank statement. This must be dated within the last 3 months. The address should match the one you used on the loan application. If there are two people applying for the loan, you will need to provide valid documents for both.
Proof of your employment status/income
Your lender will need to assess your income and expenditure. Hence, you must provide evidence of your employment status and salary. Commonly accepted documents include bank statements, recent payslips, P60 and proof of any other income.
If you are self-employed, then you will need to provide your last two years’ accounts, SA302 and/or tax returns to demonstrate that you can afford the loan payments.
Where you have multiple sources of income, the lender may ask for more detailed documents or approach your accountant for confirmation.
Bank statements
Bank statements are the simplest way to prove the income that you receive along with regular outgoings and address to potential lenders. For this reason, you will be asked to provide at least three months of bank statements.
You should also remember that a lender may use the information in your statements to assess your financial stability. Therefore, it is important that you check the documents before submitting them.
Proof of debts
If you have existing debts, you must provide details of these to your lender. This includes any credit cards, car finance, overdrafts and other loans.
Having multiple debts can impact your ability to obtain a secured loan. That’s why it is important to ensure you can comfortably manage all your outgoings before applying for a loan.
These documents can sometimes take time to obtain. That’s why it is important to make sure you are organised and have all the required information before submitting a loan application.
When the lender views your credit file they will be able to see your debts and mortgage account, along with the amounts you owe and how well you have been keeping up the repayments.
Proof of property ownership
The solicitor working on behalf of the lender will be checking that you do actually own the property in question and that you are authorised to allow a charge to be placed against it.
Many years ago the actual paper title deeds would have been used but nowadays the Land Registry holds all of this information, which can be checked electronically.
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Do all lenders ask for the same information?
No, each lender will have their own criteria and may ask for slightly different documents. However, most lenders will generally want to see the basics of ID, address, income, bank statements, proof of existing debts and evidence of property ownership.
If you are applying for a very competitively priced secured loan then the lender may be a bit pickier than others and could request lots more info. They are just being careful and will only provide the best rates to those borrowers that can pass this underwriting process.
What can I do to speed up my secured loan application?
The simple answer is to provide everything you have been asked for as soon as possible.
You can also help the process by ensuring the details you provide in the application are correct, that your proof of identity documents are valid and up to date, and that your address is accurate.
In addition, if you are self-employed or have multiple sources of income it is important to provide appropriate documents that demonstrate your earnings and ability to pay back the loan.
We would always recommend that you use a mortgage broker when applying for this type of loan. The broker will be on hand to check all of these documents before they get sent on to the lender.
Not on the High Street!
The high street lenders can’t help every mortgage customer and they prefer the simple, low-risk ones.
If your situation is a bit different or needs a more personalised solution then our brokers can help.
Expert advice, for all situations.
Second Charge Mortgages
It’s important to get expert advice when taking out a second mortgage as there are a lot of things to consider.
Bridging Loans
The most flexible of secured loans and often misunderstood. Bridge loans can be used in so many different ways and can be arranged super fast.
Complex Mortgages
A complex mortgage could be considered any situation that does not fit with the standard lenders. Typically this would be borrowers who have multiple income streams and/or properties of non-standard construction.
How long does it take to apply?
For a secured loan, the overall process can take 2-4 weeks on average. The length of time varies significantly depending on the document requirements and how quickly you can provide them to the lender.
Using a mortgage broker is a great way to speed up this process.
A secured loan takes longer than an unsecured loan or personal loan, because of the extra levels of identity and credit checks that are needed. There’s also the requirement to confirm your property ownership and apply to have the new charge registered with Land Registry.
Will my property need a survey?
You won’t need a survey but the new lender will require your home to be professionally valued. This is carried out by an independent surveyor who will produce a valuation report, so that the lender can see exactly how much your home is worth.
The value of your property must be high enough to cover the loan amount you are requesting plus any existing charges on it. This means that where there is already a mortgage registered against the property then the total of the new loan and existing mortgage must not exceed the property’s value.
Often a physical inspection is not needed and the lender can rely on an automated valuation and other data points. However, a physical inspection may be required for higher value properties or higher LTVs.
What does LTV mean?
LTV stands for Loan to Value. It is the ratio of loan size compared with the property value and expresses how much of your home’s equity you are utilising with secured debt.
Loans of this type are available up to 90% LTV, which must include existing mortgages and secured debt.
We have a simple online LTV calculator which works this out for you.
How do I get a secured loan?
If you want to get a secured loan then it is best to start by speaking with an independent mortgage broker.
We can introduce you to an award winning broker who will be able to assess your financial situation, find the best lending products available and help you make an informed application. It’s the only way that you can be confident that the deal is the right one for you. These loans are regulated by the FCA and the broker needs to prove that they have given you the right advice.
They can also answer any questions you might have about the process, help prepare your application and provide advice on the documents needed to support your application.
It is important to understand the risks associated with any form of secured loan before applying, so make sure you seek independent financial advice if you are unsure about anything.
