We’ve seen a surge of people searching for “homeowner loans direct lenders” of late – and we thought it’s best to address what they are and where you can find them. 

Although this search term isn’t grammatically correct, these internet surfers are looking for information about homeowner loans that are provided directly by lenders, rather than by middle-men credit companies and alike. 

Learn more about homeowner loans and using direct lenders, right here! 

First, what is a homeowner loan?

Homeowner loans are a type of loan for homeowners. These loans allow the homeowner to borrow money against some available home equity and may also be known as home equity loans or second charge mortgages. Only consider applying to a lender that is authorised and regulated by the Financial Conduct Authority (FCA). 

The loan provides the homeowner with a lump sum amount. This loan is then repaid over a fixed period of monthly repayments including interest, from anywhere from one to 20+ years depending on the size of the loan. 

Taking out a homeowner loan comes with a risk of losing your home. If you cannot meet your repayment obligations, the lender can repossess your home and sell it, using the money to recover the debt. This is why you should think carefully before securing debts against your home equity. 

Importantly, the mortgage lender of the property gets to recover their own debt first if the property is sold. 

What is the easiest loan to get approved for?

Getting approved for any type of personal loan will depend on if the lender believes the loan you’re asking for is affordable based on your level of regular income and existing debts. They use your personal finances and ongoing debts to calculate if you will comfortably afford monthly repayments without hardship or the risk of defaulting. They’ll also look at your credit score to see if you have managed repayments well in the past. 

However, a secured loan is generally considered easier to get approved for because the loan uses collateral within the credit agreement. This means one of your assets is listed as security in the event you do not repay. The lender can seize the asset and sell it to raise money to recover the debt and any arrears. An arrangement like this provides additional peace of mind to the lender, which is why secured loans are considered somewhat easier to get. 

Is a homeowner loan a secured loan?

Homeowner loans are a type of secured loan because the loan uses home equity as collateral. Because it uses the equity in your home as security, the equity also helps to determine how much you can borrow with a homeowner loan, along with the lender’s Loan to Value ratio (LTV), personal finances and your credit score. 

To work out how much home equity you have accumulated through years of mortgage repayments, you simply need to take your existing mortgage balance and any other debts against your home away from its current market value. For example, if the value for your property is £175,000 with a remaining £80,000 mortgage, this equates to £95,000 in home equity. 

However, it should be noted that some banks and loan providers sometimes offer homeowner loans as an unsecured loan as well. In this case, the loan is unsecured like any other unsecured loan but is named a homeowner loan. The reason for this is to attract homeowners who may be considering a loan. 

Are homeowner loans easy to get?

It’s not possible to say whether homeowner loans are easy or difficult to get on the whole. On the one hand, they are a type of secured loan so they may be easier to get approved for than some unsecured loans, especially if you have a poor credit history. But on the other hand, you’re likely to already have an existing mortgage to pay at the same time, and thus your debt to income ratio will be higher. 

Each lender applies its own affordability checks based on the amount you want to borrow and your planned repayment term. If they believe you won’t be able to keep up repayments without causing financial hardship then they could reject your secured homeowner loan application. 

Why consider a homeowner loan

Despite putting your family home on the line, many people consider using a secured homeowner loan because it could provide a larger loan amount compared to a personal loan or credit card. Secured loans can generally enable larger borrowing, but homeowner loans push the boundaries on this if you have significant home equity. 

You could be able to borrow a larger loan ready to use for home improvements, home renovations or for consolidating existing borrowing. Some others use the money to buy expensive cars or go on once-in-a-lifetime trips around the world. 

The disadvantages of a homeowner loan

Some of the drawbacks of using a homeowner secured loan are:

  1. Your home may be repossessed and sold if you cannot keep up with repayments
  2. Securing other debts against your home will take you longer to own it outright
  3. You are at increased risk of negative equity if the market crashes or the value of your property drops
  4. Loan lenders can charge additional fees and closing costs

What is a direct lender?

A direct lender is a company that provides mortgages, credit cards and loans using their own money. No other company is involved in the process of lending credit. 

An example of a direct lender would be a UK bank. Banks are direct lenders because the money you receive is from them and you pay them back with no other party involved. But it’s not just banks that are direct lenders. Some building societies and online loan providers are also direct lenders. 

What is the opposite of a direct lender?

The opposite of a direct lender would be a company that markets loans and credit but doesn’t actually provide the finance and the loan itself. Instead, your details are passed on to the real lender that processes and provides the loan. Or the company may be a comparison website or an offshoot of the real lender and you’re dealing with them through this offshoot. 

Because you might be dealing with a “middle man” or credit broker within the process, you could be paying a fee to this company for finding the loan you use – and you might not be aware of it. 

The loan could be more expensive than if you went straight to the first lender because the direct lender is paying a finding fee or commission to the middle-man company. This is why it can save you money to use direct lenders rather than indirect ones. 

How do I know if the company is a direct lender?

There are different ways to tell if the company you are considering for a secured loan is a direct lender or not. Within the small print of their website, you should be able to find details of how the credit is provided. More often than not, direct lenders will want to advertise themselves as such, so you may find they state this within their website content, often within FAQ pages. If the lender is a big bank or renowned loan provider, there’s a good chance they are a direct lender. 

But if you haven’t heard of them before you should dig a little deeper – or simply ask them on a call. If they try to avoid the question or don’t answer it clearly, they probably aren’t direct lenders of secured loans. 

Is Evolution Money a direct lender?

Evolution Money is a UK credit broker and not a direct lender. The small print on their website says they will pass your details to other credit brokers if they cannot find you a loan. This is just one example of a company that could easily be perceived as a direct lender, when in fact they are not. 

Homeowner loans with direct lenders

If you would prefer to use a direct lender to take out a homeowner loan, the safest option is to use one of the high-street UK banks, such as Lloyds, Halifax, Santander and many others. These banks are certainly direct lenders. But remember, just because you avoid some unnecessary fees doesn’t mean they will always be the cheapest. Take your time to complete meticulous research. 

Moreover, remember that any representative rates are not always what you’re offered if approved. These rates are what just over half of applicants were provided at best. The other half of applicants could have received lower or higher rates, but it’s more likely to be the latter. 

Should I get a homeowner loan with a direct lender?

Secured loans and homeowner loans may be advertised with direct and indirect lenders. So, should you get a direct lender homeowner loan or an indirect lender homeowner loan? Judging on what was mentioned above, not using a direct lender could end up costing you more money – but not always. 

Getting any secured loan through a comparison website, credit broker or indirect lender might mean having to pay a broker fee and charges, sometimes even ongoing commission. Even if you don’t, the direct lender might have put their loan interest rate and other fees up as a result of having to pay the indirect lender themselves. This generally means using a direct lender is advantageous.

However, you should search the whole of the market for secured loans before making a decision. 

Is it easy to get secured loans with bad credit?

Secured loans might be easier to get with bad credit in comparison to an unsecured loan with bad credit, but that doesn’t necessarily make them easy to get. Some loan providers even advertise secured loans for bad credit, which may be suitable to those with a lower than average credit score. 

Lenders assess applications for secured loans on how affordable they are to the applicant. They look at the applicant’s income and what existing debts they have. They then use the project monthly payments on the secured loan to work out what percentage of their regular income would be needed to pay all of their debts. Each lender will have a threshold that the applicant must be under, with a large part of their income reserved for everyday essential living expenses. 

Can I get a homeowner loan with bad credit?

It can be possible to get a homeowner loan with bad credit. As a secured loan, these types of loans are somewhat easier to get than unsecured loans where it will be harder, time-consuming and costly to recover unpaid debts in comparison. 

However, if you apply with a low credit score, you might be offered a higher interest rate. You can check your credit history before applying to see if there are any mistakes. Having erroneous records removed can increase your score instantly and enable you to get a more appealing interest rate. 

Discover more about homeowner loans and direct lenders

You should always think carefully before securing more debt against your home. To help you contemplate your options sensibly, MoneyNerd has more guides available to read for free all about secured loans and homeowner loans. Check them out right now!

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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