Home Equity Loans: What Is a Home Equity Loan?
Borrowing Against the Home You Already Own
If you own a home and have been paying a mortgage for a few years, you may have built up value in the property that you can borrow against. That is the simple idea behind a home equity loan. Instead of taking out an unsecured personal loan, you use your home as security to raise a lump sum.
It can be a sensible way to fund something big. It can also put your home at risk if things go wrong. This guide walks through both sides in plain English, so you can decide whether it fits your situation.
Who Might Find This Useful
This guide is written for UK homeowners who have some equity in their property and are weighing up how to fund a large expense, consolidate existing debts, or pay for major home improvements. It will also help anyone who has come across the phrase "equity loan" and wants to know exactly what it means before speaking to a lender or broker.
What a Home Equity Loan Actually Is
Equity is the part of your home you effectively own outright. It is your property's current market value minus the outstanding mortgage balance. If your home is worth £300,000 and you owe £180,000, you have £120,000 of equity. That figure sits at the heart of almost every lending decision.
In the UK, a home equity loan is usually arranged as a second-charge mortgage. It sits behind your existing mortgage in priority, which is why lenders call it a "second charge". You keep your current mortgage exactly as it is and take a separate loan secured against the same property, repaid in monthly instalments over an agreed term.
Because the loan is secured on your home, missed payments can ultimately put the property at risk.
It is worth saying clearly: this is not the same as the government's Help to Buy: Equity Loan, and it is not the same as equity release. Those are different products with different rules, which we cover further down.
How the Borrowing Is Assessed and Repaid
Lenders start by working out how much value remains in your property once your mortgage is accounted for. Most will then cap borrowing at a percentage of the property's value, often expressed as combined loan-to-value (CLTV), which adds your existing mortgage and the new secured loan together. The more equity you hold, the more room there tends to be, and the more competitive the rates on offer may be.
Affordability checks follow. A lender will look at your income, your regular outgoings, your existing credit commitments and your credit history to judge whether the monthly payments are sustainable. A valuation of the property is usually required, and legal work is involved because a charge is being registered against your home.
Repayment is normally straightforward: you receive a lump sum and repay it monthly, with interest, over a fixed term that can run for several years. Some UK lenders also offer a home equity line of credit (HELOC), where you draw, repay and redraw up to an agreed limit and pay interest only on what you use. These are far less established in the UK than in North America, but providers such as Selina Finance do offer the structure here.
Why Homeowners Choose This Route
The main appeal is scale. Because the loan is secured against your property, lenders are generally willing to advance larger sums than they would on an unsecured personal loan, and to spread repayments over a longer period. That can make a significant project affordable month to month.
Common uses include major home improvements such as extensions or loft conversions, consolidating credit cards and other debts into a single monthly payment, funding a vehicle purchase, or covering a one-off cost like a wedding or school fees. Barclays and Experian both describe this type of borrowing as a way to raise a lump sum from your property's value without having to sell up and move.
There is another practical reason. If your existing mortgage carries a very attractive rate, or heavy early repayment charges, remortgaging to release cash may cost more overall than leaving that deal untouched and taking a separate second-charge loan alongside it. For some borrowers with a chequered credit history, second-charge lenders can also be more flexible than mainstream mortgage lenders, though usually at a higher rate.
Weighing the Benefits Against the Risks
| Potential advantages | Points of caution |
|---|---|
| Access to larger sums than most unsecured loans allow | Your home is at risk if you fall seriously behind on repayments |
| Longer repayment terms can lower monthly payments | Longer terms usually mean more total interest paid overall |
| Existing mortgage and its rate can stay untouched | Valuation, legal, broker and lender fees can add to the cost |
| Often accessible to borrowers with imperfect credit | Rates are typically higher than a first-charge mortgage |
| Fixed monthly payments make budgeting predictable | Reduces the equity available for a future move or later borrowing |
| Useful for consolidating multiple expensive debts | Consolidating unsecured debt turns it into debt secured on your home |
The Details That Catch People Out
The biggest single misunderstanding is the word "equity loan" itself. The government's Help to Buy: Equity Loan was aimed at first-time buyers of new-build homes, letting them borrow between 5% and 20% of the purchase price (up to 40% in London) with no interest charged for the first five years. It was never a product for existing homeowners releasing cash. It is now closed to new applications in England and Scotland, and MoneyHelper notes Wales operated a separate route with a longer timeline running to September 2026. Availability genuinely differs by nation, so always check the rules where you live.
Equity release is different again. MoneyHelper describes it as a distinct type of mortgage aimed at older homeowners, with age criteria and potential consequences for inheritance that simply do not apply to a standard repayment loan.
Beyond terminology, check the total cost of credit rather than the headline rate, ask whether the rate is fixed or variable, confirm any early repayment charges, and be honest with yourself about how a rate rise or a drop in household income would affect the payments.
Other Ways to Raise the Money
- Remortgaging or a further advance - borrowing more from your existing lender, or moving your whole mortgage to a new deal at a higher amount. Often cheaper than a second charge, but check early repayment charges first.
- An unsecured personal loan - no charge against your home, quicker to arrange, and usually available up to around £25,000 to £50,000 depending on the lender and your circumstances.
- A home equity line of credit (HELOC) - a reusable facility secured on your property, useful when costs arrive in stages rather than as one lump sum.
- 0% purchase or balance transfer credit cards - potentially interest-free for a set period, best suited to smaller amounts you can clear before the promotional rate ends.
- Point-of-sale finance - retailer or installer finance for a specific purchase such as a new kitchen, boiler or car, arranged at the time of buying.
- Equity release or a retirement interest-only mortgage - for older homeowners only, and worth taking regulated advice on given the long-term implications.
- Saving and staging the work - not always practical, but spreading a project over time avoids interest altogether.
Questions People Ask Most Often
How much can I borrow with a home equity loan? It depends on your equity, your income and outgoings, and the lender's maximum combined loan-to-value. Lenders add your existing mortgage to the new loan and cap the total at a percentage of your property's value, so more equity generally means more borrowing potential.
Is a home equity loan the same as a second-charge mortgage? In the UK, the two terms are usually used to describe the same thing: a loan secured against your property that sits behind your main mortgage.
Is a home equity loan interest-free? No. The five-year interest-free period people remember belongs to the government's Help to Buy: Equity Loan, which was a separate scheme for new-build buyers. Standard home equity loans charge interest and require monthly repayments.
Could I lose my home? If you fall seriously behind on repayments, yes. The lender can seek repossession because the loan is secured on the property. Speak to your lender early if you are struggling, and get free advice from MoneyHelper or a debt charity.
Do I need my existing mortgage lender's permission? Your main lender's consent is typically required before a second charge is registered, and your second-charge lender will handle that process.
Is it better than remortgaging? Sometimes. If your current mortgage rate is very low or carries large early repayment charges, a second charge may work out cheaper. Comparing both properly is the only way to know.
Where Kandoo Fits In
Kandoo is a UK finance broker, which means we help you compare options rather than pushing a single product. We can talk you through whether secured borrowing genuinely suits your circumstances, what the alternatives look like side by side, and what documents a lender is likely to ask for. Our aim is a clear, no-pressure conversation so you understand the cost and the commitment before you apply, not afterwards.
Important Information
This article is general information, not financial advice, and does not take account of your personal circumstances. Your home may be repossessed if you do not keep up repayments on a loan secured against it. Product availability, rates and scheme rules vary by lender and by UK nation and can change. For free, impartial guidance, visit MoneyHelper or speak to a regulated adviser before committing.
Buy now, pay monthly
Buy now, pay monthly