Secured Loans With Mortgage Arrears: What Are the Options?

At a glance

• Current mortgage arrears are a serious sign of payment difficulty and can restrict secured-loan options.
• A new secured loan is not automatically the right solution to arrears.
• Existing lender support, debt advice and alternative arrangements may need to be considered first.
• Approval remains 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.

Mortgage arrears arise when scheduled mortgage payments have not been made in full and on time. For
someone considering a secured loan, homeowner loan or second charge mortgage, current arrears are
particularly important because they relate to an existing debt already secured on the home. A new mortgage
commitment should only be considered if it is affordable and suitable.

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.

Why mortgage arrears matter

A second charge lender will normally review the conduct of the first mortgage. Current or recent arrears can
indicate financial pressure and may fall outside many lenders’ criteria. Where a lender does consider the case,
additional evidence and a clear understanding of the cause of the arrears may be required.

Consider support before new borrowing

Where the homeowner is in payment difficulty, contacting the existing mortgage lender is important. Depending
on circumstances, the lender may discuss payment arrangements or other forms of support. Free debt-advice
organisations can also help review the wider financial position. FCA guidance has specifically highlighted the
need to consider whether customers with payment difficulties should engage with existing creditors rather than
automatically consolidate debt into a new mortgage.

Affordability cannot rely on consolidation alone

A new loan should not be presented as affordable merely because it clears some existing monthly commitments.
The assessment needs realistic household expenditure and must consider whether the borrower can maintain
the new secured payment over the term.

Risks of adding another charge

A second charge creates another mortgage secured on the property. If payments are not maintained, arrears
and additional costs can build and the home may ultimately be at risk. Where existing mortgage arrears are
already present, that risk requires particularly careful consideration.

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 installment, 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.

If debt consolidation is involved

Consolidating existing debts into a secured loan may extend the repayment term and increase the total amount of interest payable over time

Consolidation can simplify several payments into one, but it can also turn previously unsecured credit into mortgage debt. The comparison should include current balances, existing interest rates, remaining terms, any settlement costs, the new secured-loan fees and the total amount payable over the new term. Where a customer is already in payment difficulty, alternatives such as speaking with existing creditors or obtaining free debt advice may need to be considered.

Worked example

Example: A household is £1,200 behind on its first mortgage after a temporary fall in income. Before adding a
second charge, the cause and current affordability need to be established. If the income has not recovered, using a
new secured loan to clear the arrears may simply replace one problem with a larger secured commitment. If circumstances have stabilised, a lender may still require evidence and will apply its own arrears criteria.

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

Can I get a second charge while my mortgage is in arrears?

Some specialist lenders may consider certain cases, but current arrears can significantly restrict options and no
approval should be assumed.

Will paying a default remove it from my credit file?

Not automatically. The cause of the arrears, current affordability, existing lender support and other debt options
should be reviewed first

Will arrears affect my credit file?

Missed mortgage payments can be reported to credit reference agencies and can affect future borrowing
decisions

Where can I get help if I am struggling with my mortgage?

Contact your mortgage lender promptly and consider free, independent debt guidance such as Money Helper or
an authorised debt-advice provider.