Home Equity Line Of Credit (HELOC) UK
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Understanding home equity line of credit
What is a HELOC?
A HELOC is a flexible property loan that operates as a form of revolving credit secured against your home or an investment property.
These facilities allow you to borrow and repay funds flexibly, for an agreed period, using the equity in your property as collateral for the debt.
It’s a really fast way to borrow money against your home and the funds can be in your bank account within just a few days.
This type of borrowing is extremely popular in the USA, has now come to the UK and is quickly becoming a popular way to borrow against the equity in your home.
How do they work?
It works in as a hybrid between a credit card and a secured loan. Rather than borrowing a single lump sum, you’re able to borrow and repay flexibly up to a certain limit for a set term up to five years.
This allows you to borrow more when needed and repay when possible to ensure you only pay interest on money that’s needed.
This allows you to take a more flexible approach and only borrow what’s needed. For example, if you’re taking on an extension at home and need to factor in a contingency fund, a HELOC is perfect.
In this situation, if costs overrun and the contingency is required, you can simply use the facility to cover the costs. Equally, if costs come in on target, you don’t borrow the additional funds and as a result, save money on interest costs.
When borrowing using a homeowner loan or second charge mortgage, to allow for a contingency, you would have to borrow the full amount, including contingency, potentially wasting money on additional interest costs.
What is the difference between the draw period and the repayment period?
A HELOC term is made up of two distinct periods, the draw period and the repayment period.
The draw period, which is usually the first 5 years of the loan term, is more flexible and allows you to draw and repay funds as required. During this period, repayments are usually low and very flexible.
Standard repayments are low, but you have the flexibility to make larger overpayments whenever suits you.
At the end of the draw period, your HELOC will revert to a more typical loan structure, as it enters the repayment period.
Once the repayment period begins, you can no longer draw further funds from the facility and must make regular repayments until the loan facility is repaid in full.
How much can I borrow?
What is your minimum and maximum loan size?
We can offer HELOCs from £10,000 up to £500,000, meaning we can meet most peoples borrowing requirements.
Is there a maximum loan to value (LTV)?
The maximum loan to value for a home equity line of credit in the UK is 85% LTV.
This means that the combination of your total mortgage balance and maximum facility limit can not exceed 85% of the value of your property.
Affordability
On top of the loan size and LTV limits, you must meet affordability calculations in order to qualify.
This calculation is not straightforward, but we can assess your affordability within minutes, so enquire now if you’d like to know your maximum borrowing potential.
How much do they cost?
What interest rate will I pay?
The interest rate on a home equity line of credit can either be fixed rate or variable rate.
We can currently offer a choice of a 2 year fixed rate, a 5 year fixed rate or a variable rate that is linked to the bank of England base rate.
The type of interest rate chosen will impact the overall APRC of your facility.
Our advisors will discuss your needs and make a recommendation based on your preferences and how changing interest rates could impact you.
As a HELOC is secured against your property, interest rates are lower than those charged on unsecured credit, such as personal loans, credit cards, or bank overdrafts
What fees will I have to pay?
On top of the interest charged, you will also face some fees when setting up the loan. They are:
- Product fee or lender arrangement fee – This fee is charged when the HELOC application process is complete and the facility goes live. It can usually be added to the loan.
- Broker fees – Many brokers charge large fees for their service, up to 12.5% of the facility amount. At ABC Finance, we charge a low 5.5% fee on completion with no upfront fees.
- Valuation fees – While most facilities can be arranged without the need for a physical valuation, if a desktop valuation is not possible, you may be required to pay a valuation fee.
Do I have to pay interest on the whole facility?
No, you only pay interest on drawn funds, meaning you will pay less when you draw less and will immediately benefit from any overpayments made.
This could make borrowing using a HELOC more financially efficient than using an equivalent product such as a mortgage or secured loan.
Will I qualify?
If you own your own home and have sufficient equity, there is a good chance that you will qualify for a HELOC.
Who can you lend to?
Our HELOCs are available to individual borrowers – either sole or joint owners of property in the UK.
What security is acceptable?
We can only raise this type of facility against residential property in the UK. Buy to let or other investment property can not be used as security for these loans.
For second charge lending against a BTL, consider a buy to let secured loan.
Will I qualify if I have bad credit?
Yes, we offer a range of bad credit HELOCs for borrowers with a poor credit history or low credit score.
We can consider borrowers with missed payments, defaults, CCJs, or previous IVA, bankruptcy or mortgage arrears.
What documents will I have to provide?
When you apply, the lender will require certain documents in order to make an underwriting decision. They are:
- Proof of ID – Usually a passport or driving licence.
- Proof of address – A utility bill dated in the last 3 months
- Proof of income – 3 months payslips of employed borrowers and 2 tax documents for self-employed borrowers
- Bank statements – 3 months bank statements required in most cases
How to get a HELOC in the UK
What is the application process?
The application process works as follows:
- Get a quote – We offer written terms in 1 hour and are happy to offer a comparison of this type of finance against other options.
- Apply – We handle the whole application process for you. We can assist with filling out the forms and all you need to do is send over the personal documents required by the lender.
- Underwriting – The underwriting process can be completed quickly and if successful a lending offer is issued.
- Receive the money – Sign the offer and return it. Once you’ve done this your facility will go live and you’re free to draw down money as needed.
How do I get started
To get started, get in touch with ABC Finance today. We’re leading HELOC providers in the UK and can get you the funds you need, fast. Enquire online or call us on 01922 620008 and we’ll handle the whole process for you.
