70% Secured Loan
Obtaining a secured loan with bad credit need not seem as difficult as many people think. One of the key factors in obtaining a secured loan is the LTV (loan to value) the loan to value is as a percentage which represents the amount owed on the property set against the property value.
For instance, if you have a property value of £200,000 and want a mortgage of £120,000 the LTV would be 60% meaning you want to borrow 60% of the property value.
As for as secured loans are concerned the LTV you want to apply for should be calculated with your main mortgage taken into consideration. If we take the example above and use the figures to represent your existing mortgage, you would have 40% equity and 60% of the property would be mortgaged. If you then want to apply for a secured loan of £20,000 this would be calculated as follows:
£120,000 + £20,000 = £140,000
£140,000 divided by £200,000 = 0.7 *100 = 70%
So the LTV or loan to value would be 70%, or a 70% secured loan even though the amount you want is much less, the total amount of the existing mortgage and new secured loan must be added together to determine the equity being taken up by both when you apply for a secured loan.
What secured loans could a person with adverse credit apply for.
The days of people with adverse credit applying for 100% secured loans with adverse credit are pretty much gone. Adverse credit secured loans are pretty much limited to around the 80% mark, although a more realistic figure would be 70%, especially if there are missed payments on your existing mortgage.
We have done a little research and as an example a 70% loan to value secured loan will typically allow the following adverse credit.
- Ignore all defaults
- Allow upto a few CCJ's, varying in amounts (typically upto £10,000)
- Allow up to 3 or 4 missed mortgage payments.
There are a few secured loan products which will allow up to 85% that claim to allow adverse credit but we found they allow very little, possibly a small default and a CCJ's but rarely mortgage arrears.
There are a few 85% secured loan deals available that we found would still enable self cert for the self employed but they will not normally allow any adverse credit at this level unless its very slight, as mentioned above - possibly a few defaults.
To have the best chance of securing a secured loan with adverse credit having a maximum 70% LTV (30% equity) will give much greater choice than 85%. If your refinancing needs require more than 75% and you have adverse credit we would suggest looking at both a secured loan and a remortgage. This will ensure you are getting enough information to make an informed decision.
Whilst a remortgage will incur more fees (such as solicitor costs which do not apply to secured loans) you will generally find the rates associated with a mortgage to be better than that of a secured loan as the secured loan lender will 'sit' behind the first mortgage on the mortgage deeds thus giving the first mortgage lender more power in regards to repayment of the loan - this is why a secured loan is often referred to as a second charge or second mortgage.
