Rates on secured loans lower than mortgages?

IdéeFixe

I've been thinking about buying a holiday home with my parents. My parents are retired and own their house outright. A financial advisor suggested that our best option is to take out a secured loan against their house. However, I can't find rates quoted online for this sort of loan - seems like you have to speak to a broker or lender. Does anyone have knowledge of what sort of rates are available in this situation?

Some more background: my parents have substantial savings and good pensions, and their house is worth about 2-3x what we would spend on a holiday home. I have a good salary, of which less than a fifth goes on my mortgage payments (my fixed rate is 1.59%), and I have a lot of equity in my property. Our credit ratings should be strong. Taking out a mortgage or joint mortgage is another option, but it would mean giving up a lot of savings for the deposit and the total borrowing would be more limited due to the income multiples that the mortgage lenders apply.

[Deleted User]

a mortgage is a secured loan.   Its a loan secured against their property

IdéeFixe

Mortgages are usually secured against the property being purchased with the loan. If that is not the case, then the deals on offer will be different. Many lenders/brokers have separate areas on their sites for 'secured loans', distinct from the 'mortgage' sections, but they don't tend to state actual rates, hence my question.

[Deleted User]

IdéeFixe said:

Mortgages are usually secured against the property being purchased with the loan. 

Mortgages are secured against the property that the borrowing is done against.   You can borrow £100k against your house and buy a completely different house with it and nothing will be secured against the 2nd home. 

Its all semantics really. Mortgages are secured loans and secured loans are homeowner loans.  Depending on what lender or person you speak to they will call them different things. 

Anyway, to your actual question. Here is a link to current rates from a few different providers.  

https://www.nortonfinance.co.uk/loan-calculator

kingstreet

The mortgage is the security which ties the property to the loan. It's only in the last couple of decades the word mortgage has become synonymous with the loan itself.

IdéeFixe

Deleted_User said:

IdéeFixe said:

Mortgages are usually secured against the property being purchased with the loan. 

Mortgages are secured against the property that the borrowing is done against.   You can borrow £100k against your house and buy a completely different house with it and nothing will be secured against the 2nd home. 

Its all semantics really. Mortgages are secured loans and secured loans are homeowner loans.  Depending on what lender or person you speak to they will call them different things. 

Anyway, to your actual question. Here is a link to current rates from a few different providers.  

https://www.nortonfinance.co.uk/loan-calculator

Thanks, this website is useful. Looks like 'secured loan' borrowing rates are actually a good bit higher (unless there are special deals not shown, eg. for those who own 100% of the property).

[Deleted User]

Traditional mortgage will 99 times out of a 100 be cheaper than a secured loan.

Any reason this hasnt been considered? 

IdéeFixe

A traditional mortgage was what I was thinking, although there are two limitations. Firstly, since I already have a mortgage, there's only so much more I can borrow before I hit the lenders' borrowing limits (income multiples). Secondly, if we used a joint mortgage, we could combine incomes and borrow more, but the term would need to be ten years or less due to my parents' age. Their financial advisor had mentioned secured loans (I wasn't there myself), but perhaps they meant for my parents to independently obtain one and put it towards the deposit for a mortgage in my name. But I wanted to double check that a secured loan might not actually be cheaper than a traditional mortgage (not sure why it wouldn't be, to be honest... if anything it seems more secure from the lender's perspective).

[Deleted User]

It's less secure as they are generally 2nd charge loans. So if the property is repossessed then they only get their debt repaid after the main mortgage company has covered their debt and costs.   They lose money more often due to this so this loss is spread across the interest rates and everyone pays a bit more to cover it. 

They could take a normal mortgage against their property in their names and put it as the deposit for a holiday home mortgage. They would need to raise about 25% of the price of the holiday home (secured on their main home) plus fees and then take the other 75% as a holiday let mortgage (secured on the holiday home) . The holiday let mortgage won't be based on income, it will be assessed against expected rental income. 

IdéeFixe

Oh I see, they can simply apply for a normal mortgage against their home, which would have a low LTV and low rate. Well that would probably be the answer, either to fund a deposit or to jointly (with me) borrow the whole amount. I don't think the holiday let idea would work though as we're not intending to let it out, unless I arranged to pay them rent but I suspect that would mean paying income taxes.