Homes / A Guide to Home Owner Loans

A Guide to Home Owner Loans
A home owner loan is any loan that requires the borrower to provide the lender with some form of security. In this case the security will be your home.

Home Owner loans are available in varying amounts and for many different purposes e.g. car, boat, new carpets, furniture, paying off credit cards, debt consolidation and any other debts.  The amount borrowed usually varies from £1,000 upwards and is dependent on the equity you have in your property and the lenders view of your ability to repay the loan.  The amount borrowed is usually repaid over a period of between 3 - 25 years.

Lenders charge interest rates on the amount borrowed.  These are sometimes fixed but for home owner loans are usually variable.  If the rate is variable the rates change with market forces and will change the amount you repay.  As a general guide it is advisable to compare the annual percentage rate (APR) of different lenders.  Home owner loan rates tend to be lower than unsecured loans as the lender has your property as security.

Lending institutions offer you the option of taking a home owner loan either over the phone, via written application or on-line. Initial assessments can be made quickly although for regulated loans (those under £25,000) a 7 day consideration period must be given so you are fully aware of the implications of the home owner loan.  

When assessing applications the lender will collate together your income and financial commitments to see if you can afford to take on the home owner loan.  They also look at any adverse credit or mortgage arrears and the equity in your property.  All lenders insist on married couples both being named on the application form.  Subject to circumstances you may be able to borrow up to 125% of your property value.

Lenders frequently use credit scoring facilities and credit reference agencies to assess your suitability.  Credit scoring assesses your personal statistics, for example your age and occupation and each statistic is given a score.  Credit reference agencies provide a detailed analysis of your own financial position.

If you are refused a home owner loan or wish to make enquiries concerning your own credit file you can apply to the credit reference agencies for a copy of your credit file.  A small fee will be charged for this service.  Details can be obtained through your lender.

A home owner loan is subject to The Consumer Credit Act.  The Act contains strict regulations about how much money is lent and covers loans up to the value of £25,000.  When taking out a home owner loan you will be asked to sign a credit agreement.  Read this carefully before you sign, as you will be bound by its terms.  

Some lenders offer insurance policies or payment protection schemes to protect you in the event of accident, illness or redundancy.  However, cover may vary and you should check with your individual lender what a particular policy or scheme covers, or more importantly, excludes.

If you do have difficulty making any repayments, seek advice from your lender immediately.  The earlier the better and the more sympathetic they will be.  For example, they may accept an underpayment until you get yourself back on your feet.  Alternatively, you can seek advice from a voluntary organisation.