How do secured loans on joint mortgages work?
Secured loans on joint mortgages work like traditional secured loans. You borrow a set amount and pay it back (plus interest) each month, over a fixed time frame. An asset, such as your home, is used as collateral. So if you fall behind with payments, lenders may repossess your home to claim back funds, in the worst-case scenario.
If your mortgage is joint and you want to take out a secured loan, the loan must also be in joint names.
This is unlike a single mortgage, where you could take out a joint or sole secured loan (depending on the lender).
With a joint secured loan, both owners are jointly and severally liable. If one person can’t or won’t pay, the other person is responsible for the full debt - not just their ‘half’. So you need to bear this in mind when working out how much you can afford to borrow.
If you have a shared ownership mortgage with a housing association, you’ll need to get their consent before you can apply for a secured loan. It will work in the same way as a normal secured loan. However, the amount you can borrow will be restricted by the share you have in the property.
How to apply for a secured loan with a joint mortgage?
There are several steps to applying for a secured loan with a mortgage:
1. Get permission from other homeowners
You will need to get the other homeowner's permission before you can apply for a secured loan. The other party (or parties) will need to sign paperwork and consent to credit checks being carried out by the lender. As mentioned, they will also be jointly and severally liable for payment.
2. Work out how much you can borrow
How much you can borrow and the interest rates you’re offered will vary from lender to lender. It will also be impacted by factors like:
- How much equity you have - this relates to the portion of the property you own outright. It’s the difference between your mortgage balance and the current market value of your property
- Your income and outgoings - the more you have left at the end of the month, the more you may be able to borrow
- Your credit score - the higher your credit score, the more you could borrow and the lower your interest rates
3. Check your eligibility
Before you apply for a loan, you can check if you’re likely to be accepted using eligibility checkers. They only take a few minutes to complete, and they don’t impact your credit score. So you can use them as many times as you like.
4. Check your affordability
Lenders will usually perform ‘stress tests’ to check how much you can afford to borrow now and in the future. Based on this, they will give you an idea of how much they’re willing to lend you. But you also need to do your own sums to make sure you can comfortably afford it - on top of your other bills.
5. Compare the cost of borrowing
You can compare the total cost of borrowing using the Annual Percentage Rate of Charge (APRC). This includes interest and fees that you pay each year for the duration of the loan.
Bear in mind, it may not include extra costs like late fees and early repayment charges. You would need to ask the lender or check the terms and conditions for more information.
6. Speak to a financial advisor
It’s best to speak to a qualified financial advisor to find the best option for you. If so, they will help you find a loan that you are eligible for and will suit your circumstances. We have advisors on hand at Ocean ready to help.
If you have a joint mortgage, the lender will take 100% of your house value and mortgage balance into account. This is because all parties are jointly and severally liable for the full amount.
They’ll deduct your mortgage balance from the current market value to work out how much you own outright (i.e. how much equity you have in your property). The higher your equity, the more they may be willing to lend you.
For example, if you own a house worth £250,000 and your mortgage is £150,000 your equity is the £100,000 difference. This is the amount you may be able to borrow against.
If you have a shared ownership mortgage, it works slightly differently. Say you own 50% of the property, your equity will be based on how much of that 50% you have paid off. For example, if you’ve cleared half of it, then you will own 25% outright. So you may be able to borrow money against this 25%.
Advantages of a secured loan with a joint mortgage
- You don’t need a good credit score to get accepted
- You can typically borrow more, with lower interest rates, than with a personal loan
- You can spread the repayments over a longer period, making it more affordable
- Lenders will take both incomes into account, which may improve your eligibility
Risks of a secured loan with a joint mortgage
- Both parties will be jointly and severally liable
- More interest may be payable if you spread repayments over a longer period
- If you don’t maintain the repayments, your home could be repossessed
- The lender can chase you for the remaining balance on your secured loan once the proceeds of sale have been deducted
The other homeowner(s) won’t give permissions for a loan – what should I do?
If the other homeowner(s) won’t give their consent for a secured loan, you could consider getting an unsecured personal loan instead. This won’t be attached to your property.
You will also receive the funds quicker, as there isn’t any legal paperwork involved. Remember to shop around for the best deal and use eligibility calculators before you apply.
Secured Loans from £10,000 to £100,000
- Check if you’re eligible before you apply
- We compare 100s of secured loans
- Getting a secured loan quote won’t affect your credit score
We have found loans with rates from 2.10% to 25.34% APRC, which has allowed us to help customers with a range of credit profiles. Representative Example: If you borrow £20,000 over 10 years, initially on a fixed rate for 5 years at 5.35% and for the remaining 5 years on the lender's standard variable rate of 6.15%, you would make 60 monthly payments of £247.79 and 60 monthly payments of £252.62. The total amount of credit is £22,995; the total repayable would be £30,119.60 (this includes a Lender fee of £595, a Broker fee of £2,400 and a Lender exit fee of £95). The overall cost for comparison is 9.1% APRC representative. This means 51% or more of customers receive this rate or better.