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If you own a home and have enough equity in your property, you may be able to use this equity as security to allow you to borrow £150,000. Your income will need to be sufficient to cover the repayments on the loan (plus any other financial commitments you might have).
While your credit history will be likely to impact the interest rate you’d receive, the good news is that secured “homeowner” loans are commonly issued to borrowers with both good or bad credit.
Each loan specifies a maximum “LTV”. This is the loan-to-value ratio, and it basically means the maximum overall amount of borrowing allowed as a proportion of the property’s value.
For example, if your house was worth £400,000, and you had £150,000 still owing on your mortgage, a homeowner loan specifying a maximum LTV of 75% could allow you to borrow an additional £150,000.
Each application will be considered on its own merit, however. So unfortunately, having sufficient equity doesn’t guarantee approval, but it can guarantee that your application will be considered.
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The loan illustrations above use approximate, rounded figures, based on a flat interest rate. Longer-term secured loans are likely to have variable interest rates. If the rate goes down during the course of the loan, the monthly and overall costs would decrease. Conversely, if the rate rises during the course of the loan, the monthly and overall costs would increase. Current interest rates are low compared to historical averages.
The minimum income requirements will vary depending on factors like the term of loan that you opt for. All lenders must be able to demonstrate that they are lending responsibly. So in other words, they must be careful to ensure that the proposed repayment schedule would be affordable for you, taking into account your income and outgoings. For example, an applicant with a £35,000 salary but relatively low regular financial commitments might stand a better chance than an applicant with a £50,000 salary and exorbitant monthly outgoings.
Ultimately your income is just one important part of the picture on which a lender will assess your case.
Loan companies often specify a minimum income requirement in their basic lending criteria (example below). Crucially, meeting these entry-level criteria means that you can apply, but doesn’t mean that approval is guaranteed.
When you secure a loan against property, your credit score becomes a less crucial factor – but remains a factor nonetheless. The importance given to your credit score will vary from lender to lender, with some lenders specifically aiming to serve those with bad credit. If you have a damaged credit record, you’ll likely be offered an interest rate that’s higher than the very best rates advertised by lenders.
Secured loans can take 2-3 weeks to arrange and draw down. Although there aren’t solicitors involved, a property valuation of some form will be required and if there’s a “first charge” over the property, then that lender will also need to give its approval.
These extra steps make secured loans a little slower, but the trade-off for many is access to lower rates and/or larger sums.
You can adjust your loan term in order to make your monthly repayments more affordable. Similarly, you can increase your monthly repayment in order to clear the loan in less time. As a general rule of thumb, spreading repayments over a longer timeframe normally makes for lower monthly repayments (but a higher overall cost). So it really depends on what you can afford to repay each month.
At a fixed annual rate of 4.0%, a £150,000 loan would take over 17 years to repay if your monthly repayment was £1,000. If you wanted to keep the monthly costs down, and paid £800 each month, it would take more than 24 years.
Here is a non-exhaustive list of what matters to a lender when it’s weighing up the risk of offering you a loan:
Realistically, getting a £150,000 loan can be slightly harder for self-employed people. These individuals are seen as a higher risk for lenders because their income is perceived to be less stable. Still, there are lenders that specialise in homeowner loans for self-employed people. Expect to be asked for a little extra documentation – typically two years’ worth of accounts, SA302s/tax calculations, HMRC tax overview statements and possibly a reference from your accountant as well.
Remortgaging is a popular strategy for homeowners to get hold of huge lump sums. This involves altering your mortgage deal and borrowing against the equity of your property. If you’ve got a lot of equity or can bag a low mortgage rate, this could prove more economical than a personal loan.
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