Learn more about low equity loans.
What is a low equity loan?
If your home has low or negative equity, we explore whether you could apply for a secured loan.
When you build up a high amount of equity in your home, a wide range of secured loans could be available to you. However, if you’ve only recently stepped onto the property ladder or if your home has fallen in value, you might struggle to find the finance you need.
What is low equity?
Equity is the difference between current the value of your property and the amount that is owed on it. The more mortgage repayments you make, the more equity you’ll build up. However, if you’re a new homeowner, it will take several years before you start building up equity. If you have low equity, it broadly means that the amount you owe is still higher than what you’ve repaid.
Low equity isn’t a bad thing in itself, but it can sometimes make it tricky to secure finance against your home. Some secured loan lenders will only provide loans up to a pre-determined Loan to Value ratio. Therefore, they could refuse an application if the homeowner has low or negative equity.
Why does low equity impact my loan eligibility?
Sometimes, low equity can limit the number of loans available to you. Having low equity means you only own a small portion of your property, as the majority is still owned by the lender (e.g. bank, building society etc)
If you apply for a secured loan, the lender will apply a charge against your property. This means that you risk losing your home if you can’t repay the loan in full. If you haven’t built up any equity in your home at all, it’s not technically yours to offer as collateral – as it mainly belongs to your mortgage lender.
You could still be accepted for a loan with low equity, but it could impact the amount you can borrow. As you can only provide a small amount of collateral, it will likely reduce the size of the loans you can apply for.
What is a low equity loan?
A low equity loan is essentially what it says on the tin. It’s a secured loan that allows you to borrow against your home, even if you haven’t yet built up much equity.
They won’t differ from other secured loans, although you might not be able to receive a high amount. While you could still borrow money, lenders typically won’t allow you to borrow more than the amount of equity in your home. For example, if you have £10,000 of equity, it’s unlikely that you’ll be able to borrow anything above £10,000 with a secured loan.
Can I apply for a low equity secured loan?
While it’s harder to apply for a secured loan with low equity, it’s not impossible. Many lenders specialise in offering low equity loans and won’t turn you away if you’ve only recently bought your home.
To find a suitable low equity loan, you’ll need to look out for LTV ratios. LTV stands for loan-to-value, and it will tell you the maximum amount you could borrow up to. The higher the LTV, the more you could stand to borrow.
Find a low equity loan with Evolution Money
At Evolution Money, we can offer secured loans to homeowners with low or even negative equity. As responsible lenders, we’ll carefully look at your personal circumstances to find a secured loan deal that suits you. We review each application on a case-by-case basis, so we won’t automatically rule you out for having low equity.
Think carefully before securing debts against your home your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
