What Does a Secured Loan Broker Do?

A secured loan broker is a professional adviser who can research the second mortgage market and find the most appropriate product that meets your requirements.

While numerous mortgage brokers assist mainly in arranging for people to purchase their homes, fewer specialist brokers give advice on second mortgages.

What Is A Secured Loan Broker?

A secured loan broker is authorised and regulated by the Financial Conduct Authority (FCA) to give advice on secured loans, which are often referred to as second mortgages or second charges.

The broker will have several lenders on their panel, whom they can approach to see who offers the most competitive terms.

Different lenders specialise in different parts of the market. Some, for example, offer low interest rates for borrowers with very good credit scores who have maintained their finances without any problems.

Others will happily lend to those with a lower credit score and may have missed the occasional credit card or loan repayment. 

Whatever your circumstances, a good, secured loan broker with many lenders on their panel should find you the best available deal.

How Secured Loans Work

Secured loans work on the basis that the lender holds a charge/mortgage against your property for the lifetime of the loan. This means that you may ultimately end up losing your home if you miss repayments on your loan. 

To qualify for a second mortgage, you must already have a mortgage already secured against your property.

This differs significantly from an unsecured or personal loan, where you are not offering any security to the lender. This means that even if you miss monthly repayments on your loan, you would keep your home.

With second mortgages, lenders offer high loan amounts, often at lower interest rates. This reflects the fact that they have your home security in case you miss repayments. The average secured loan is around £48,000, whereas unsecured loans tend to be for much smaller amounts, circa £10,000.

Benefits Of Using A Secured Loan Broker

When looking for the most appropriate product to meet your needs, an experienced secured loan broker will have access to sourcing software. He will enter all your personal information into a system to determine the best available product.

It will also notify the broker of all the documentation he must provide when submitting your loan application.

A good broker will have relationships with the lenders on their panel. This enables them to talk to the lender if they have an application that might not quite meet all of the lender's requirements but that the broker feels is a robust application. Each lender employs a Business Development Manager (BDM), who is the broker's first point of contact.

The Business Development Manager fully understands their company's products, and they often train broker employees to ensure that all parties are well-informed about them.

At this point, the broker is likely to have only carried out a “soft” credit search to obtain a list of lenders who may be prepared to lend to you.

Once a formal application has been submitted to the lender, they will conduct a “hard” credit report, which is registered with the credit reference agency.

The quicker you provide the documentation your broker requests, the quicker the lender can underwrite and complete your application.

Types Of Secured Loans Available

There are two types of secured loans available.

The first and most popular way of borrowing money is a loan, whereby you determine how much you want to borrow and apply for that loan amount. For example, you might wish to pay £40,000 to pay off and consolidate your current finances and £10,000 to buy a new car. In this scenario, you would apply for a loan of £50,000. On completion of the loan process, you would receive £50,000.

One point to remember when consolidating debts is that while you may be reducing your monthly payments, you will likely borrow the money over a long period, meaning that you will likely repay a lot of interest.

It should also be noted that the loan is secured on your property and that you may lose your home if you do not make payments.

The other type is a home equity line of credit (HELOC) loan. With a HELOC loan, you agree to borrow a certain amount, say £60,000. On completion of the loan, you can withdraw the amount you need now and borrow further amounts of up to £60,000 as you require. 

This works particularly well if you are carrying out significant home improvements. You may only need £20,000 to start the project and withdraw further amounts as the project progresses.

Another scenario where a HELOC loan works well is when someone borrows for school fees. You can withdraw an amount to pay for each term; the benefit is that you are only charged interest on the amount withdrawn.

If a HELOC loan meets your requirements, make sure to mention this product to your broker. A good broker will be fully aware of the benefits of a HELOC loan and should include this option when looking for the best product for you.

How To Choose The Right Secured Loan Broker

There are many mortgage brokers who specialise in secured loans. Those who need a better understanding of the secured loan market usually work with a broker who fully understands secured loans.

Either way, please make sure that they have an extensive number of lenders on their panel to ensure that you get a competitive quote.

You also need to check all fees that will be payable, including any broker fee. These can vary significantly from broker to broker and lender to lender. You can generally add any fees to the loan amount you are borrowing. The point to remember here is that you will be paying interest on the fees all the time you have the loan.