Selling a House if You Have a Secured Loan

Table of Contents

Pay it off before you move
Pay it off after selling your house
Transfer the loan
Does a secured loan affect remortgaging?

Having a secured loan shouldn’t necessarily stop you from being able to sell your house.

However, a secured loan will affect the amount of equity you own in the property and maybe your affordability for a mortgage, so you’ll need to bear this in mind.

Here are your options if you want to sell your house which has a secured loan against it.

Pay it off before you move

If you can afford to do so, you could choose to pay off your secured loan in full before you sell your house. This would clear your debt, meaning you could sell up without needing to think about the loan and its potential implications on your new property purchase.

It would also improve your affordability as you would no longer need to pay off the loan each month. As your outgoings would be smaller, you are likely to be a more appealing prospect to mortgage lenders.

Furthermore, if you pay off the loan, you wouldn’t need to worry about filling in the paperwork to move your secured loan to a new property or renegotiate the terms of the agreement.

However, you may need to pay early repayment fees if you do choose to pay off your loan, so check with your lender to see if this is the case.

If you don’t have the money to clear your secured loan and you can’t, or don’t want to, transfer the loan, you may be able to use an unsecured loan or another form of credit to pay it off. An unsecured loan wouldn’t be tied to your property, but it may come with higher interest rates so think carefully before pursuing this option.

Pay it off after selling your house

You don’t need to have paid off your secured loan before you sell your house. It is possible to sell your house and then use the money from the sale to pay off your secured loan. You should tell your secured lender if you plan to do this.

If you have a mortgage (and you’re not planning to port your mortgage to a new property), you will need to pay off your mortgage too. Your mortgage lender will have priority over your secured lender. This means the proceeds from the sale will first be used to pay off your mortgage, and the remainder will be used to pay off your secured loan. As a result, it’s important to make sure your house sale will be enough to clear both of these loans.

For example, if you owe £150,000 on your mortgage and have a secured loan worth £40,000, your house sale would need to be more than £190,000. Ideally, you would sell your house for significantly more than this to account for early repayment fees and other costs associated with moving, and also so you had some equity leftover to go towards your new house purchase.

Having a secured loan means you won’t own as much equity in your property, so you need to be mindful of this if you plan to use some of the value of your current house towards your new purchase.

If you’re in negative equity and the sale of your house is unlikely to be sufficient to clear these loans, you would need to rethink your plans.

Transfer the loan

If you’re moving to a new house, you may be able to transfer your secured loan. This will only be possible if you are buying your next property, not if you’re renting.

You would need to talk to your secured loan provider if you want to do this and give them all the information they need to move your loan, including details about the property you want to move the loan to.

Your lender may not always agree to transfer the loan. The decision is likely to depend on your credit history, how much you owe, the value of your current house and the value of the house you plan to move to, among other factors.

Although you won’t face any early repayment charges by doing this, transferring a loan is likely to involve admin fees so make sure you check this with your lender.

Does a secured loan affect remortgaging?

Having a secured loan won’t prevent you from remortgaging, but you may find you’re not eligible for deals from some providers.

Even if you are eligible to remortgage, having a secured loan will influence the lender’s decision.

A secured loan reduces the equity you own in the property and may affect the amount that you can borrow on your mortgage.

Also, because you will have to make payments on your secured loan, lenders will take this into account when they work out how much you can afford to pay on your mortgage each month.

If you plan to remortgage and you own enough equity in your home, you may be able to borrow more than your current mortgage and pay off your secured loan with your new agreement.

For example, if you currently owe £100,000 on your current mortgage and £20,000 on a secured loan, you could choose to remortgage for £120,000 to cover your mortgage and use the excess to pay your secured loan.

You would then owe £120,000 to one mortgage lender and just have one set of payments to make.

Depending on the new mortgage rate and repayment term, your monthly payments may be larger than remortgaging just for your house and paying for the loan separately. You may also end up repaying more overall, so check how much remortgaging would cost you and weigh up whether this is the right option for you. You should also look out for any fees you may need to pay.

Remortgaging may not be possible or suitable for everyone, and it will depend on how much you owe, how much you can afford to pay, and the lender’s individual criteria.

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