What is a HELOC (Home Equity Line of Credit)?
A home equity line of credit, or HELOC, is a revolving facility secured on a property. The term is common in North America. A US-style HELOC should not be assumed to be a standard or widely available UK product.
Where a UK lender offers a revolving or drawdown secured facility, the eligible property, security, rates and repayment terms depend on that product.
How does a HELOC work?
A lender assesses the proposed security, existing borrowing, affordability and credit history before deciding whether to offer a facility and what limit to allow.
If the agreed product allows staged withdrawals, you can request further funds within its limit. Withdrawals may be subject to minimum amounts, time limits and other conditions.
A drawdown period lets you access funds within an agreed limit, if the particular product provides that feature. Its duration, minimum draw and any right to redraw repaid money depend on the contract.
How you pay back a HELOC
A product may separate a drawdown period from a repayment period, but there is no universal UK HELOC structure.
Some facilities require interest payments while funds are drawn; others require capital payments as well. Check whether fees apply to the facility and whether interest is charged only on amounts drawn.
At the end of a drawdown period, the balance may need to be repaid over an agreed term or as a lump sum. A balloon payment creates refinancing risk and needs a credible repayment plan.
How much can you borrow?
Loan-to-value compares secured borrowing with the property’s value, not with the equity alone. A second-charge lender normally considers the existing mortgage and proposed loan together, alongside affordability and credit criteria. There is no universal percentage of equity you can borrow.
A calculator estimates payments using its stated amount, rate and term. It is not a lending offer, eligibility confirmation or suitability assessment. Compare the personalised terms and total cost before applying.
First, you need to work out your available home equity. This is done by working out the current market value of your home and then subtracting all debts secured by the property.
For example, if you own a £150,000 property and have a £100,000 mortgage loan, you have 33.33% equity which is equal to £50,000.
For illustration, an 80% maximum combined LTV on a £150,000 property allows £120,000 total secured borrowing. Subtracting the £100,000 mortgage leaves £20,000 for an additional loan or facility before financed fees. It does not mean you can borrow 80% of the £50,000 equity. Actual limits and affordability checks vary.
Other factors can influence how much you can borrow with a HELOC.
A Loans Warehouse customer’s experience
Individual experiences vary. Compare the total cost, fees, repayment term and risks before applying. A lower monthly payment may mean paying more overall, and secured borrowing puts your home at risk if repayments are not maintained.
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What is the difference between a home equity loan and a home equity line of credit?
A conventional UK homeowner or second-charge repayment loan normally advances a lump sum. A revolving facility, where available, allows borrowing within an agreed limit. The precise repayment and rate terms must be compared. See related guidance.
Thus, the way you receive the loan and the way you repay are different. There can be pros and cons to both types of secured loans.
Are HELOCs available in the UK?
Do not assume a current UK HELOC is available from a particular bank or broker. Products and distribution change, and many UK lenders instead offer lump-sum homeowner loans, further advances or remortgages.
North American HELOC descriptions should not be used as promises about UK availability, tax treatment or repayment rules. Ask an authorised adviser to identify an actual current product.
How do I get a HELOC?
First confirm a current UK provider and product, then check affordability, property valuation, legal requirements and fees. A calculator or enquiry is not approval, and completion times vary.
Enquire about a secured loan through Loans Warehouse, a credit broker, not a lender. Approval and terms depend on checks. Compare the full cost before applying. MoneyNerd may receive a referral fee. Your home may be repossessed if you do not keep up repayments on a loan secured against it.
Can you get a HELOC with any bank?
No. A bank offering mortgages or personal loans does not necessarily offer a HELOC.
Use the lender’s current product information and check the firm’s FCA permissions. A broker referral for a secured loan is not evidence that a revolving credit line will be offered.
How do I qualify for HELOC?
To qualify for a HELOC you will need to:
- Have sufficient home equity in the property you wish to borrow against
- Be able to afford projected repayments, as calculated by the lender
- Meet the lender’s credit-history and affordability requirements
What is the minimum credit score for a HELOC?
There is no minimum credit score required to get approved for a HELOC with all lenders. Your credit score differs between credit reference agencies because they can use different scaling systems, and each lender can apply its own acceptable credit rating criteria.
Each lender sets eligibility and affordability requirements. There is no universal UK credit-score threshold or guarantee of approval; income, commitments, credit history and any proposed security all matter.
Can you get a HELOC with high debt?
You might be able to get approved for a HELOC with a high amount of existing debt.
Existing debts reduce disposable income and can limit available equity. Even if you have equity, approval is not guaranteed.
The lender will complete an assessment of your debt-to-income ratio to work out what repayments are affordable to you, which could limit the amount you’re able to borrow through a HELOC.
What is a HELOC good for?
A lender may permit particular uses, but you must check the agreement. Potential uses can include the following; securing spending on your home creates a repossession risk.
- Home improvements
- Paying for private school fees or university tuition
- Paying for private medical care
- Helping to fund big-ticket purchases, such as a new car or further (property) investments
Can a HELOC be used to consolidate debt?
A lender may permit a secured facility to repay eligible debts. Using a UK HELOC for this purpose depends on an actual product being available and suitable. See related guidance.
Using a HELOC for debt consolidation works by getting approved for an amount of money you need to pay off multiple other debts, and any other fees that may come from doing this, such as early repayment charges.
Is it wise to use a HELOC to pay off debt?
Consolidating debt through secured borrowing is a major decision. Get free debt advice if repayments are already difficult and compare alternatives before adding debt to the home.
Debt consolidation with a HELOC merges some of your debts into one new debt secured against your home.
Compare total repayment amounts, fees, the term and future rate changes. Adding the old debts’ interest percentages together is not a valid cost comparison. Lower monthly payments can mean a higher total cost.
What are the advantages of a HELOC?
The pros of using a HELOC are generally:
- You can access a sizable loan based on home equity, which is often more than what’s available through unsecured loans.
- You could get a competitive interest rate, considering the loan is secured by your property.
- Some facilities charge interest only on the amount drawn, but fees and other charges can still apply.
- Flexible borrowing can help manage staged costs, but it can also encourage overborrowing. Set a budget and check the full costs and repayment obligations.
- Borrowed money held as capital and the way it is used can affect means-tested benefits. Obtain a benefits check; there is no general guarantee that a credit line avoids this issue.
What are the disadvantages of a HELOC?
The cons of using a HELOC are generally:
- The loan is secured against your property and this puts the property at risk
- Variable interest rates could increase in the future
- You might need to draw a minimum amount during the draw period
- A longer and more complicated application process in comparison to personal loans and credit cards
- Lender, broker, legal, valuation, early-repayment or discharge fees may apply. Do not assume a standard US-style closing-cost structure for every UK product.
Does a HELOC have a fixed interest rate?
Rate type and any lender discretion depend on the agreement. A variable rate can increase repayments and the total cost; some products or portions may be fixed.
How do rising mortgage rates affect HELOCs?
A change to one mortgage product does not automatically change another loan’s rate. The effect depends on whether the facility tracks a benchmark, is fixed, or uses a lender-set variable rate.
The Bank of England base rate and market conditions can influence borrowing costs, but changes are not necessarily passed through immediately or in full. Read the contract’s rate provisions.
What is a good HELOC rate?
Good HELOC interest rates are time-sensitive. What might be a good rate at the time of publication may not be a good rate in the future.
You can learn more about this in our HELOC rates in the UK guide.
Is HELOC interest tax deductible?
Interest on private borrowing for your own home is not normally tax-deductible. Borrowing used for a qualifying property business can have different rules, including restrictions for individual residential landlords. The use of the funds matters; obtain tax advice.
Is it worth getting a HELOC?
Availability, affordability, flexibility, fees and risks all matter. Having equity alone does not make a HELOC suitable.
Homeowners’ situations are unlikely to be exactly the same, so you may want to get professional advice before making a decision.
Does a home equity line hurt your credit?
A home equity line of credit has the potential to decrease and increase your credit score, depending on how you manage your HELOC repayments.
A hard search and a new borrowing account can affect your credit file. Paying as agreed may support your record, but it does not guarantee a higher score or future approval.
However, if you miss payments or pay late, you can cause significant damage to your credit report, making it harder to get another loan in the future.
Is there a better option than a HELOC?
A HELOC is just one borrowing option and not the only secured loan you can consider. We discuss some other ways to use secured loans to borrow money below, which might be better than a HELOC for your needs.
You can learn more about an array of secured loans on our dedicated secured lending hub.
Home equity loans
Home equity loans are another type of second mortgage that can be added to your home. A standard home equity loan is similar to a HELOC but is considered less complicated by providing a lump sum and a fixed repayment period. Home equity loans might have fixed interest payments, which could appeal to some people.
Remortgaging
You might not need to apply another line of credit against your home at all. If you have an existing mortgage, you could instead remortgage and ask to borrow more from the mortgage provider to release a lump sum.
Unsecured lending
If you’re not needing a significant amount of credit, you could consider a personal loan instead of a HELOC. There are benefits and disadvantages to using unsecured credit rather than a HELOC, which we’ve covered in detail here.
