Can I sell my house with a secured loan against it?

What is a secured loan?

A secured loan (also known as a homeowner loan) is money you borrow using your home as security. This means if you can't make the payments, the lender could take your home to get their money back.

Will a secured loan affect my mortgage?

Your secured loan sits alongside your mortgage. Both loans use your house as security, which means both lenders have legal claims on your property.

When you sell your home, you'll need to pay back both your mortgage and your secured loan from the sale money. This is called ‘settling your debts’.

Your mortgage lender will want to know about any secured loans you have. Most mortgage agreements require you to tell them about additional borrowing against the property.

Don't worry - having a secured loan doesn't automatically cause problems with your mortgage, but keeping everyone informed helps avoid issues later.

What happens to a secured loan when my house is sold?

You do usually have to pay back a homeowner loan before you sell your home and move. This is because the loan is secured against the property in question. Your mortgage takes priority and would need to be paid off first, followed by the secured loan.

Here's how it works:

1. You agree to sell your home to a buyer
2. Your solicitor contacts all your lenders (mortgage company and secured loan provider)
3. They ask for ‘redemption statements’ - these show exactly how much you have remaining on your mortgage and any secured loans
4. On completion day, your solicitor uses money from the sale to pay off these debts
5. Any money left over comes to you

Normally, you wouldn’t need to find the money yourself to pay off the loans before selling. This is because the proceeds from the sale typically cover this for you.

What if my home sells for less than my total borrowing?

This situation is called ‘negative equity’. It happens when your outstanding mortgage and secured loan add up to more than your house is worth / sells for.

Example:

• House sale price: £200,000
• Outstanding mortgage: £180,000
• Outstanding secured loan: £30,000
• Total owed: £210,000
• Shortfall: £10,000

If this happens, your mortgage takes priority and would be settled first. Then you'll need to find the extra money (£10,000 in this example) to pay off the secured loan and complete the sale.

Your options include:

• Waiting for your equity to increase over time, e.g. if the value of your house rises.
• Making overpayments towards your secured loan or mortgage to get your outstanding balance down.
• Building up savings to put towards your deposit on a new home.

If you're in negative equity, speak to a mortgage advisor or debt counsellor. They can help you explore all your options and find the best solution for your situation.

Can I move my secured loan to my new property?

Although it’s not common, it can sometimes be possible to move your loan to your next property. The process is called ‘porting’.

Due to the factors involved, including approval from both your mortgage and secured loan lenders, porting is rare. Instead, loans tend to be paid off before or during your property’s sale.

Whether you can port your loan depends on:

• Your lender's policies
• The value of your new home
• Your current financial situation
• How much you still owe.

Because of this, it’s more typical that people pay their loan off using money they get from the house sale. Then, if they still need to borrow, they take out a new loan.

Can I sell my home before the mortgage term is up?

Yes. You can sell your house at any time, even if your mortgage term hasn't finished.

Most mortgage deals have early repayment charges if you pay it off before it’s due to end. The charge varies between providers, but is typically between 1-5% of your remaining balance.

The same applies to some secured loans. Check your loan agreements or ask your lenders about any early repayment charges for paying loans off early.

Even if there are charges, you can still sell. The fees just get taken out from your sale proceeds along with the loan balances.

How do I repay my secured loan early?

If you want to pay off your secured loan before selling (maybe you've come into some money), here's what to do:

Step 1: Contact your lender - Request an 'early settlement figure'. This tells you exactly how much you need to pay to clear the debt completely.

Step 2: Check for charges - Ask about any early repayment charges.

Step 3: Make the payment - Once you're happy with the settlement figure, arrange payment. Most lenders accept bank transfers or cheques.

Step 4: Get confirmation - Make sure you get written confirmation that the loan is fully paid off.

Key steps for selling with a secured loan

1. Get valuations - Find out what your house is worth and how much you owe
2. Contact your lenders - Tell both your mortgage and secured loan providers about your plans
3. Instruct a solicitor - They'll handle the legal side and coordinate with all lenders
4. Market your property - Start looking for buyers
5. Accept an offer - Once you find a buyer, your solicitor manages the completion process
6. Complete the sale - All debts get paid off, and you receive any remaining money.