Home Owner Loan

Matt_Cardiff

Hi all, I'm looking for a bit of advice in regards to borrowing more to do some bits around my house.

We moved home last year, porting my existing mortgage and taking out a second mortgage for the additional borrowing - both with HSBC. We intended on doing home improvements on a month to month basis with wages, but long story short, due to a massive lack of maintenance in the house over the years, we have several things going wrong at once that will need to be addressed quicker than our monthly spending will allow.

I have spoken to HSBC who have advised a home owner loan. £20k over 26 years at £74pm (total cost over the term £29k). On Martin Lewis' Secured Loans section of his website, he says that for additional borrowing a secured loan is NEVER the right option here.

I'm not sure what other options I have, as; an unsecured loan is too expensive - and my re-mortgage is not due for over 2 years with the early repayment charge (ERC) being around £2k. I was thinking of contacting the bank again to see if they could add the ERC onto a new mortgage, along with the additional borrowing of £20k to see if that works out any better, but I'm not sure if this is possible. To also note, the value of my home has gone up quite a bit since purchasing last year so I would be in a much more favourable LTV bracket when it comes to re-mortgaging.

Martin Lewis' words have made me more cautious over taking out this home owner secured loan, grateful for any advice.

Thanks.

kaMelo

In simple terms an unsecured debt cannot make you homeless whereas a secured debt can, it's not that simple but that's the ultimate end point if things go south.


Most people have no choice to take on a mortgage to buy a home, they couldn't afford it otherwise. Taking on additional loans means you have more debt, so more exposure should things go wrong and money becomes tight in the future. In this case you target the priority debt, the mortgage, as it's secured on property. If you have nothing left to pay the non priority debt, an unsecured loan, then so be it. You will not lose your home. If however your extra loan is also secured then you have no headroom if things get tight, they are both priority debts with the potential, albeit remote, to leave you homeless. 

That's before you take into account the level of interest you will pay back of nearly £10,000

Ebe_Scrooge

Matt_Cardiff said:

I have spoken to HSBC who have advised a home owner loan. £20k over 26 years at £74pm (total cost over the term £29k)

I'd check those figures if I were you - £74pm over 26 years means the total you pay is £23088.  This seems a bit of a bargain if it's correct.

I'm not sure what other options I have, as; an unsecured loan is too expensive When you say expensive, what's the total amount repayable?  An unsecured loan is likely to have a higher APR than a secured loan, and monthly repayments will be more since it's probably only being repaid over 3, 5 or 7 years, rather than the 25 or so years on a mortgage.  But I suspect the amount repayable will turn out to be lower overall.

A couple of thoughts in bold above.  But at the end of the day, if you can't borrow the money at a reasonable rate, you need to really question whether the work is absolutely essential - or can you do things bit by bit, as and when you can afford them.  Are there any temporary, DIY fixes you can do that will tide you over?

As the previous poster says, the problem with a secured loan is that, if you fail to make the repayments, you could find your house being repossessed.  That's why Mr. Lewis urges great caution before considering a secured loan.

I was thinking of contacting the bank again to see if they could add the ERC onto a new mortgage, along with the additional borrowing of £20k to see if that works out any better, but I'm not sure if this is possible.

This is certainly possible - especially if the LTV ratio is now going to be lower.  Whether the bank would agree to it is a different matter of course - but there's nothing lost by asking them.  Plus, you've got to bear in mind that you'll immediately be "losing" £2k (ERC), which is 10% of the £20k you're looking for - not an insignificant amount.

I'd really take a long hard look at what repairs need doing.  If you can make do with just those that really are an absolute priority - even if you need to take out a smaller loan to do so - then this is probably the way to go.  Do what absolutely has to be done, defer the remaining works until you've paid for the first lot.