How Much Equity Do I Need for a Secured Loan?

Equity is the portion of a property value that is not currently covered by secured borrowing. For a secured loan,
homeowner loan or second charge mortgage, the lender considers how much equity would remain after the new
loan is added. This is normally expressed through combined loan-to-value (LTV).

Terminology: secured loan, homeowner loan and second charge mortgage

In the UK homeowner market, the expressions secured loan, homeowner loan and second charge mortgage are commonly used for borrowing secured against a property where an existing first mortgage remains in place. The precise legal and regulatory treatment depends on the agreement and circumstances, so product documentation should always be checked.

 

Calculation	Illustration
Property Value	£350,000
First Mortgage	£210,000
Proposed Second Mortgage	£35,000
Total Secured Borrowing	£245,000
Combined LTV	70%

 

How to calculate equity

A simple equity calculation is: property value minus outstanding secured mortgage balances. For example, a
£350,000 home with a £210,000 first mortgage has £140,000 of gross equity before allowing for
selling costs or any other charges

How LTV affects the calculation

Lenders rarely lend up to 100% of a property value. If a lender has a maximum combined LTV of 80%, total
secured borrowing after the new loan cannot exceed 80% of the accepted valuation. Different lenders can use
different LTV limits, and adverse credit or certain property types may change the limit.

Valuation matters

The lender may use an automated valuation, desktop valuation or physical inspection. The figure accepted by
the lender can differ from an estate agent estimate or an owner’s expectation. A lower valuation reduces
available equity and can change the product or amount available.

Equity is only one part of eligibility

Even where the property provides enough security, the lender must still be satisfied that the mortgage is
affordable and meets its underwriting rules. Income, expenditure, existing debts, age, term, credit profile and
repayment history can all affect the outcome.

Potential benefits and points to weigh

Potential reasons a homeowner might consider this route include access to property-backed borrowing, the possibility of keeping an existing first mortgage in place, and – depending on the product – a longer repayment term or larger loan than some unsecured alternatives. These are not benefits for every borrower and must be judged against the actual offer available.

• Property risk: the borrowing is secured on the home, so failure to maintain repayments can ultimately lead to
• Total cost: a lower monthly payment can result from a longer term and may mean paying more interest
• Fees: lender, valuation, legal and intermediary fees may If fees are added to the loan, interest may be charged on them.
• Future flexibility: another charge can affect later remortgaging, moving home or raising further
• Eligibility: no amount, rate or approval is guaranteed; decisions are subject to lender criteria, affordability checks and status.

Comparing cost: APRC, fees and total repayable

APRC (Annual Percentage Rate of Charge) is designed to show the overall annual cost of mortgage borrowing over the full term, using the assumptions required by the mortgage rules. It takes account of the interest rate and relevant charges included in the calculation. Some costs may be excluded if they are not known to the lender, so the APRC should be considered alongside the monthly payment, total amount repayable, fees and the loan term.

A useful comparison therefore looks beyond the initial interest rate. Review the mortgage illustration or ESIS, the monthly instalment, all fees, whether fees are paid upfront or added to the balance, the term and the total amount repayable. If a variable rate applies, consider how payments could change.

Credit searches and eligibility checks

An initial eligibility check may use a soft credit search, which is not visible to other lenders and does not affect your credit score. A formal credit application will usually involve a hard search, which is recorded on your credit file and can be seen by other lenders. Processes vary, so check what type of search will be used before proceeding.

What an adviser should consider

An FCA-authorised mortgage broker or adviser, like Dragon Finance can compare the available routes in the context of the homeowner’s income, expenditure, property, existing mortgage, credit profile and objectives. Appropriate advice should consider relevant alternatives rather than focus solely on whether a particular second charge is available. Speaking to an adviser does not oblige a homeowner to proceed, although consumers should check at the outset whether any advice or broker fee could become payable and at what stage.

Frequently asked questions

What percentage of equity do I need?

There is no universal minimum. It depends on the lender’s maximum combined LTV and your circumstances.

Does my house need to be valued?

Usually some form of valuation is required, although it may be automated or desktop-based rather than a
physical visit.

Can I get a secured loan at a high LTV?

Some lenders consider higher LTVs than others, but pricing and criteria may be more restrictive.

Does equity guarantee acceptance?

No. Approval is subject to lender criteria, affordability checks and status.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

Regulatory references used in preparing this educational guide include the FCA Mortgage Conduct of Business sourcebook (MCOB), the FCA second charge mortgage market review published 12 March 2026, and Money Helper guidance on second charge mortgages. This guide is general information, not personal financial advice. Information checked against regulatory and consumer guidance available in August 2026. Individual lender criteria and product terms can change.