Can you borrow against your house?

Can I borrow against my house?

Yes, you can borrow money against your home if you own it. This is called using your home as ‘security’ for a loan. It means you can borrow money based on how much your house is worth and how much of your mortgage you've already paid off.

When you do this, you're borrowing against the value you've built up in your home (the equity). Lenders feel more comfortable saying yes because if things went wrong, they’d be able to use your house to make their money back. This means you may be able to get a loan even if you have bad credit.

Remember that when you borrow against your home, you're putting your property at risk. If you can't pay back the loan, the lender might take your home to get their money back.

How can I borrow against my house?

You can borrow against your home in a few ways. These include:

• Equity release
• Equity loans
• Remortgaging

Each option has different costs and risks, so it's important to compare them carefully and get professional advice before deciding which is right for your needs.

What is equity release?

Equity release lets older homeowners (usually over 55) get money from their home without having to move out. It's a way to turn some of the value of your home into cash that you can spend now.

There are two main types of equity release:

• Lifetime mortgages: You borrow money against your home, but don't have to make monthly payments. Instead, the loan and interest are paid back when you die or move into care.
• Home reversion plans: You sell part or all of your home to a company but can still live there rent-free until you pass away or move into care.

Equity release can give you extra money for your retirement, but it reduces what you can leave to people as an inheritance. It's important to talk to a financial advisor before choosing equity release.

What is an equity loan?

An equity loan (sometimes called a second mortgage or secured loan) lets you borrow money based on the equity in your home. Equity is the difference between what your house is worth and how much you still owe on your mortgage.

Example: If your house is worth £250,000 and you still owe £150,000 on your mortgage, you have £100,000 in equity.

With an equity loan, you keep making your normal mortgage payments, and you also make payments on your new loan. People often use equity loans for home improvements, consolidating debts, or other large purchases.

What is remortgaging?

Remortgaging means switching your existing mortgage to a new deal, either with your current lender or a different one. You can remortgage to borrow more money against your home by taking out a larger mortgage than you currently owe.

The extra money is paid to you as cash which you can use as you wish, but typically for large expenses.

Unlike equity loans where you have two separate loans, remortgaging gives you just one mortgage and one monthly payment. Many homeowners remortgage to get a better interest rate or to access the equity that has built up in their property.

How much can I borrow against my house?

The amount you can borrow depends on a few factors. These include the current value of your home, the amount left on your mortgage, and the lender's own policies.

Lenders tend to consider the following:

• Debt-to-income ratio: Lenders will check your ability to repay the loan based on your income and existing debts.
• Your credit history: A healthier credit history can increase your chances of being accepted and might also get you better interest rates. However, as your property is being used as security, you may be able to get a loan despite having a low credit score.
• Lender policies: Each lender will have their own policies regarding loan amounts and other qualifying criteria.

Lenders will also check your income and your spending to make sure you can afford the repayments.

It’s important to only borrow what you need and can afford to repay, instead of just choosing the maximum amount available to you.

Can I borrow money against my house to buy another property?

Yes, you can borrow against your current home to buy another property. Many people do this to:

• Buy a holiday home
• Purchase a property to rent out (buy to let)
• Help family members buy their first home.

This works in the same way as other equity loans. You borrow against the equity in your current home and use that money as a deposit for the new property.

Keep in mind that this means you'll have two properties with loans against them. If you can't make the payments, you could lose both homes. It's important to think carefully about whether you can afford the repayments, even if your circumstances change.

What alternatives do I have to borrowing against my house?

Depending on what you need the loan for, there’s a few other options you could consider:

1. Personal loans - These don't use your home as security, so your house isn't at risk if you can't pay. Bear in mind, they often have higher interest rates than secured loans, and you may not be able to borrow as much.
2. Credit cards - For smaller amounts, a credit card (especially one with 0% interest for a period) might be cheaper and less risky.
3. Savings - Using your savings is usually cheaper than borrowing, though you'll lose any interest your savings were earning.
4. Government or council grants - If you need money for home improvements, check if you qualify for any grants or discounts.
5. Downsizing - Selling your current home and buying a cheaper one could free up money without needing to take on new debt.

Remember, any time you borrow money, you need to pay it back. Make sure you know exactly how much you'll need to pay each month and that you can afford it.

Key points to remember

• Borrowing against your home puts your house at risk if you can't repay the loan
• Always shop around for the best rates
• Talk to an independent financial advisor before making big decisions
• Check all fees and charges, not just the interest rate
• Think about how you'll manage if your income drops or interest rates rise