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Borrowing Against Your Home: How To Get One, The Pros, and Cons

Written by, Marija Petkova

Updated September, 21, 2022

If you need quick access to a large amount of money, then you might consider borrowing against your home.

In this article, we’ll explain what you need to consider when taking a loan against a property you own and the different ways you can make that happen.

Can I Borrow Against My House?

To borrow money against your property, you’ll need to own all or part of your home, also known as home equity. 

Borrowing money against your house essentially involves taking a secured loan where you use your home as collateral. This means that if you can’t keep up with your payments, your lender can repossess and sell your home to recover their losses.

Since it provides the lender with a certain level of security, it’s much easier to get approved for one compared to unsecured loans – a market that contributes about £23 billion to the economy every year

You can take out a loan against your house if:

  • You need to borrow a large amount of money and want a longer repayment term.
  • You’re making home improvements.
  • You struggle to get approved for a loan due to bad credit history.
  • You’re borrowing against your house to buy another property.

Did you know: Creditors can turn an unsecured loan into a secured one by placing a charge on your property!

What Are the Different Ways to Borrow Against Your Home?

There are three different ways to borrow money against your house:

  • A second mortgage allows you to borrow from the equity you’ve built up in your home on top of your first mortgage. The most popular options are a home equity loan and a home equity line of credit, which allow you to access the equity in your property.
  • A remortgage is the process of replacing your existing mortgage with a new (and often, bigger) one but on the same property. Many people remortgage to buy another property.

How Much Can I Borrow Against My House?

The amount of money you can borrow against your home depends on several factors, including:

  • Your property’s value.
  • The amount of equity you have in your property.
  • Your credit history and credit score.
  • Your income and affordability.

Generally, you can borrow between £10.000 and £100.000 (or more) with a secured loan. 

When borrowing against your home equity, most lenders in the UK will lend you a maximum of 80%-85% of the amount of equity you have. This means if you have £100.000 of equity, depending on your personal circumstances, you might borrow up to around £85.000.

You may be interested in: How to release equity in a house under 55?

What Are the Advantages and Risks of Borrowing Against Your Home?

Borrowing against your home has certain pros and cons.

The main advantages include:

  • The ability to borrow a large amount of money.
  • Lower interest rates.
  • Longer repayment terms (which translates to more affordable monthly instalments)
  • Tax-deductible interest.
  • You can qualify for a loan even if you have an adverse credit history.

It also comes with some risks and requirements.

  • You can lose your home.
  • There might be some expensive arrangement fees.
  • You might have to pay a 2-5% closing fee on the total borrowed amount.
  • You’ll need to have a substantial amount of equity to get a loan.
  • You’ll still have a loan to pay if you sell your home.

What Are The Alternatives to Borrowing Against Your Home?

If borrowing against your house seems too risky or isn’t an option for you, you can try:

Credit card

With a credit card, you can borrow money from a bank or building society and pay them back in monthly instalments. You don’t necessarily need a perfect credit score, and some cards even offer interest-free purchase or balance transfer periods, but you will face a high-interest charge if you’re late on your payments.

Unsecured loan 

You can always apply for an unsecured loan that doesn’t require collateral. That means there won’t be any risk of losing your home to your lender (unless they take you to court for defaulting on your loan), but you may not be able to get as much as with secured loans.

On the plus side, there are many credit instalment loans available to people with bad credit. You could even get a loan with an IVA.

Secured loan 

Secured loans don’t necessarily have to use a house or a property as collateral. In most cases, you can use another valuable asset, like jewellery (here’s how jewellery is valued) or your car. 

Bottom Line 

Borrowing money against your property allows you to gain access to a large amount of money, usually at a much lower interest rate, compared to unsecured loans, However, it comes with the risk of losing your house, so it’s best to make sure you can afford it before moving forward with your plans.

Frequently Asked Questions And Their Answers

What is the most you can borrow against your house?

The amount you can borrow against your home depends on the amount of equity you have in your house. Most UK lenders will let you borrow up to 80%-85% of the equity you have.

Can I take out a loan against my house in the UK?

You can take out a loan against your house if you own all or part of your home.

Do you need income protection insurance?

Income protection insurance is something worth considering when borrowing against your home, as it will help you keep up with your payments in case you find yourself in a situation where you’re unable to work.

My name is Marija, and I'm a financial writer at DontDisappointMe. Although finance might not be everyone's cup of tea, my 10+ years of working in one of the biggest banks in my country, and my interest in extensive research on everything finance/investment-related, have made me somewhat of an expert in the field (if I do say so myself). No longer having the passion to work in a corporate setting, I decided that I couldn't let all of this knowledge go to waste so I started writing. And, here I am! Today I try to share my knowledge with my audience in the hopes of making this topic as simple and interesting as possible. In my leisure time, I like spending time with my family and travelling to new locations.