Does A Secured Loan Affect Remortgaging? Full Guide

Secured loans and remortgaging can seem quite puzzling. But don't worry; we're here to make things clear.

In this simple guide, you’ll find out:

• All about secured loans and remortgaging.
• How a secured loan might affect your chances to remortgage.
• The true cost of a bad secured loan.
• Why your mortgage provider might not allow more borrowing.
• What happens if you cannot pay back a secured loan.

We understand that you might be worried about these things, as many people are in the same boat. But remember, you’re not alone; we’re here to help you make sense of it all. Let’s start learning about secured loans and remortgaging together.

Can I remortgage if I have a loan?

It’s possible to remortgage if you have an existing loan. You will need to meet lender criteria to get approved for the remortgage. 

This means disclosing all your existing debts so the lender can compare your income to your outgoings and decide whether a new mortgage will be affordable for you. 

A lower proposed rate does not guarantee approval or overall savings. The lender still checks affordability, credit, property and any existing charge arrangements.

Does having a secured loan affect a remortgage?

Having a secured loan on your home won’t necessarily stop you from remortgaging for a better deal. But it could limit or stop you from remortgaging and borrowing additional money. 

This forum user on MoneySavingExpert also wants to know whether they will be able to remortgage whilst they have a secured loan. It can affect it, but it is possible in some cases.

Even where payments fall, the new mortgage lender and existing secured lender may need to agree redemption or priority arrangements. Acceptance is not automatic.

Each lender applies its own affordability assessment, including all debt payments, essential spending and relevant future changes. Approval for one loan does not establish approval for another. See related guidance.

Affordability and existing commitments

Debt-to-income can be one consideration, but no single percentage decides every mortgage application. See related guidance.

Does having a secured loan stop remortgaging to borrow more?

It’s possible that a secured loan against your home can stop you from borrowing additional money through a remortgage. You could be rejected due to not enough home equity remaining in the property and/or because the new mortgage would be deemed unaffordable. 

Not enough home equity

A secured loan is secured on the property itself, potentially behind an existing mortgage. Equity is the property value less secured debts, not a separate asset.

How do you calculate home equity?

Home equity is easily worked out by finding the valuation of the property in today’s market and then subtracting all debt against the property.

For example, if a property is worth £200,000 and the owners have a £150,000 mortgage left to pay, their home equity would be £50,000 – or 25%. If the owners then took out a secured loan of £10,000 against some of their £50,000 home equity, they would be left with just 20% home equity.

In this example, £160,000 total secured debt on a £200,000 property gives 80% combined loan-to-value and £40,000 equity. If a particular lender’s cap is 80%, no extra borrowing fits before fees; other lenders and products can have different limits.

Why won’t my mortgage provider allow additional borrowing?

Reasons for refusal can include the combined loan-to-value, affordability, credit, property or charge-priority requirements. Negative-equity risk is one consideration, not the only reason.

Deemed unaffordable

The other reason a secured loan on a property could stop you from borrowing more through a remortgage is affordability. The lender may look at the repayments you would need to make on the secured loan and the larger mortgage and determine that these repayments are not affordable on your household income. 

Ask the lender or adviser which criteria are relevant and consider alternatives. A refusal does not establish that you have budgeted poorly.

Other things might also affect a lender’s decision-making when it comes to remortgaging, including broader economic factors such as unemployment rates or inflation, particularly when it comes to those with secured loans.

Alternative Options to Secured Loans

If you don’t already have a secured loan but are wondering what your options would be if you got one and then wanted to remortgage your property, it is worth considering other financing options, such as an unsecured personal loan or a credit card. These could potentially mean that you are more likely to be able to remortgage as opposed to if you had a secured loan, but make sure you do your own research.

What stops you from getting a remortgage?

One of the biggest obstacles to getting a remortgage is having a low credit score. If you have defaulted on other loans and liens of credit since taking out your mortgage, a mortgage company may not be willing to let you remortgage with them. 

Even if you can remortgage with a poor credit history, you may not be offered the best interest rates that are advertised. This could even make remortgaging unworthwhile, especially as you will have aimed to secure cheaper interest repayments. 

What happens if you default on a secured loan with a mortgage?

A registered first charge normally has priority over later charges, subject to legal priority arrangements. Remortgaging can require consent, redemption or a deed of postponement. See related guidance.

The loan is secured on the property. Missed payments can lead to repossession through the applicable legal process; security does not remove affordability checks or give the lender an automatic right to take the home without that process.

Sale proceeds meet the relevant costs and secured claims according to legal priority.

Will the secured loan lender get any money from the sale of the property?

There may be a shortfall after all balances, interest and sale or enforcement costs, even if the property value has not fallen. A stable or higher value does not guarantee full repayment. See related guidance.

A lender’s enforcement decision depends on the circumstances and legal process. Do not assume that a lack of equity prevents action.