Is it wise to borrow against your equity?
March 26, 2011
Over the past decade many people have taken out secured loans, which are loans that were secured against the equity in their homes. Over the latter part of the 1990s for the next decade property prices in the UK soared, which saw the equity levels of homeowners go through the roof. For those that needed to borrow money this provided the perfect platform, as lenders were willing to offer very competitive loans that were secured against the equity. The more equity homeowners had the more they were able to borrow, and many people took full advantage of this.
However, in 2007 this all changed with the onset of the global financial crisis, which resulted in chaos in the financial and property markets and brought property prices crashing down. This sent many homeowners into negative equity and resulted in many losing their homes because they were unable to keep up with repayments on their mortgages and secured loans.
Whilst the value of property has not recovered to the point where it was before the global financial crisis there has been some level of recovery and some people may have seen some equity return to their homes. However, for those that do have equity in their homes is it advisable to think very carefully before taking the plunge and going for a secured loan.
The most important thing to remember is that if you are unable to keep up with repayments on your secured loan you could end up losing your home. The property market is still very turbulent with property prices going up and down, and this is not the most stable environment in which to borrow money that is secured against what is probably your most important and valuable asset.
You need to bear in mind that getting a secured loan is far more difficult now than it was in the past, as lenders are very cautious about offering loans that are secured against an asset in such an unstable environment. It is also important to remember that the government cutbacks and potential job losses are affecting the environment - and the ability of people to make repayments on their borrowing, which is another reason why you need to give careful consideration to taking out this type of high risk loan. You may find that the restrictions that lenders have in place are far more stringent, and whilst the base rate is at rock bottom at the moment lenders may charge higher rates due to the risk of defaults.
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