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A secured loan is a loan that is taken out against the value of your property, in addition to your first or original mortgage. This means that if you are unable to repay your loan then your lender can take steps to repossess your home.

A secured loan can be a second mortgage or any loan which provides security. In practice it is often secured against your property.

Your first mortgage lender will take priority if you are repossessed. This means that any money from the sale of the property must be used to repay their loan first.

Therefore a second lender is only likely to give you a mortgage if the property is worth enough to repay both loans if the property is sold. You will usually need to pay a higher rate of interest on the second loan, and your original lender will also need to agree to the second loan.

When should you take out a secured loan?

Secured loans are often taken out for a variety of reasons, including: home repairs, to pay for a car, or even a holiday. There are situations when you may need to take out a second mortgage, however, in general it is not advisable to do so, as arranging a second mortgage or getting a secured loan can be risky and will increase your overall debt.

Before you take out a loan, make sure you read the credit agreement with the lender carefully so that you understand exactly what you are committing yourself to and what will happen if you can’t make the payments. You can lose your home if you do not keep up with your loan repayments.

It is a good idea to speak to an independent financial adviser before you take out any loans.

What rights does a second mortgage lender have to repossess the property?

A lender of a secured loan has the same rights to evict a borrower who is in arrears as a lender of the original or second mortgage. A second mortgage lender does not have to get permission from the first lender before taking steps to repossess the property. However, any money recovered as a result of possession proceedings must be used to repay the original lender first.

If you miss payments on your second mortgage, your lender could take action to repossess and sell your home. This section explains more about the procedure your second lender must follow and action that you can take to delay or prevent your home from being repossessed. This procedure is slightly different to the standard repossession process.

Doesn’t my lender need to speak to me?

Your lender must follow certain steps before you can be repossessed, to try and resolve the matter before taking court action to repossess your home.

What happens if you fall behind with your secured loan?

If you fall behind with the payments on a secured loan or second mortgage, your lender must first send you a statement to let you know that you have fallen behind with the payments on your loan. This is called a notice of sums in arrears.

What should I do if I'm sent a notice of sums in arrears?

If you're sent a notice of sums in arrears by your lender to say that you are behind with your mortgage payments, don't ignore it. It's important that you take action to pay the arrears off or negotiate with your lender as soon as you can. Otherwise, your lender can take further action to repossess your home.

You may be able to work out an agreement with your lender to pay the arrears off gradually – a local Shelter advice service the National Debtline or Consumer Credit Counselling Services should be able to help you work out a payment plan and negotiate with your lender.

What if I'm in arrears but my lender doesn't send me a notice of sums in arrears?

Your lender won't be able to take any further steps to enforce the agreement (for example, by sending you a default notice) until they have sent you the notice of sums in arrears.

Talk to a money adviser if you're in this situation. You can use our directory to find an adviser in your area.

In some cases you can also take action yourself by applying to the courts to vary the lending agreement making it possible for you to repay the loan and the arrears over a longer period of time. You don't even need to wait for your lender to send you a default notice first.

What happens if my lender starts repossession proceedings?

If you have a secured loan or second mortgage and your lender has sent you a notice of sums of arrears, they must then send you something called a default notice to start repossession procedures against you.

What is a default notice?

A default notice is a warning that your lender must send to you before they can begin repossession proceedings, or take any other action, such as ending the agreement or asking you to pay off the entire loan.

This default notice should give you:

• details of the missed payments
• a date by which you must clear your arrears (this must be at least 14 days away), and
• information on what will happen if you don't clear your arrears within the given time.
  

You should also be sent an information sheet, to help you understand the default notice. This will explain:

• what will happen if you can't pay your arrears off
• what your options you have to manage the debt
• where you can get help and advice.
  

You can see what the information sheet should look like at the Office of Fair Trading website.

What should I do if I receive a default notice?

It is important that you act quickly as soon as you receive a default notice, as you will only have a limited time before you can be taken to court.

If you receive a default notice, make sure that your lender has sent you a notice of sums in arrears first. If they haven't, the default notice may not be valid. A Shelter advice centre, the National Debtline or a money adviser should be able to give you advice.

You will have several options open to you, including:

• clearing your arrears within a certain time limit, in which case no further action will be taken
• contacting your lender to try to make a repayment arrangement
• getting advice regarding your debts
• applying for a time order.
  

Making a repayment arrangement

If you can't clear the arrears within the given time limit, but you do have money/ income that you can pay towards the arrears on a regular basis, you can try to negotiate a repayment arrangement with your lender to vary your repayments so that you can afford them.

If your lender agrees to a repayment agreement for tackling the arrears, and you keep to this, then you should be able to avoid repossession.

Applying for a time order

If you're not able to negotiate a repayment arrangement, you may be able to apply to the county court for something called a time order. A time order can vary the lending agreement to allow you to repay the loan and the arrears over a longer period. If you are granted a time order and keep to the repayments, your lender will not be able to take further repossession action against you.

In some cases you may not be eligible to apply for a time order, but you should then be able to apply for an adjournment instead. If you are successful, this will have the effect of delaying any repossession proceedings against you for a limited period.

What happens at the end of a default notice?

If you have not cleared your arrears, or come to a repayment arrangement, or applied for a time order within the given time limit, your lender will be able to proceed with the standard repossession proceedings and you will be sent court papers.

Getting more time to pay

The courts have the power to grant something known as a time order, giving you time to repay the outstanding debt by rescheduling your loan over a longer period, but you will need to apply for this.

Alternatively, the court has power to grant an adjournment for a fixed period of time, or until the lender asks for a new hearing. The adjournment will normally be on terms that you make payments of a certain amount towards the arrears in addition to the current repayments.

This can delay your lender from taking further repossession action, or in some cases even allow you to avoid the threat of repossession completely.

What is a time order?

A time order is a way of asking the court to give you more time to repay your secured loan if you fall behind on your repayments. You can apply for a time order yourself, and you do not have to wait until the creditor starts possession proceedings. Alternatively, you can apply for a time order as part of your defence if possession proceedings have started.

Time orders are not available for all secured loans, so you will need to get advice on whether these will apply to your particular loan. Use our directory to find an adviser in your area.

A time order will vary the conditions of your secured loan or second mortgage to make it possible for you to pay it back. A time order can cover not just your arrears, but the rest of the loan too.

A time order can:

• allow you to repay both the loan due and the arrears in instalments
• reduce the rate of interest on the loan to make your repayments more affordable
• extend the term of the loan so that you can pay it back in smaller instalments over a longer period of time
• extend the deadline to clear the arrears.
  

Time orders are often granted as a temporary measure for people with short-term financial difficulties, and you will have to resume your original payments after a specified time. It is unlikely that a time order will be granted if you will not able to repay the loan eventually.

How do I apply for a time order?

You can apply for a time order by completing a special form that you can get from your local county court. If you are applying for a time order, the court will consider your financial circumstances, so you will need to provide a financial statement. Get help to compile a financial statement from a money adviser or from an adviser at a Citizens Advice Bureau, by using our directory to find an adviser in your area.

When should I apply?

You can apply to the county court for a time order after receiving a notice of sums in arrears or a default notice. You can also apply after your lender has started repossession proceedings in the case of certain secured loans, and you don’t need to tell your lender that you are applying for a time order.

It is important to keep a copy of the letter from your lender setting out the arrears (as well as any other correspondence from your lender), as you will need to show this to the court when you apply for a time order.

Applying after receiving a notice of sums in arrears

If you apply after receiving a notice of sums in arrears or a default notice, you must first send your lender a notice of intent telling them that you're applying for a time order and explaining how you propose to pay off the loan if a time order is granted. You can apply for a time order 14 days after sending your lender this notice of intent.

Applying after receiving a default notice

Apply for a time order as quickly as possible after receiving a default notice. If you are granted a time order your lender will not be able to repossess your home so long as you keep to the conditions of the time order.

Will I have to go to court?

You may not need to appear in court in person, although it is advisable that you should do so. If you are not going to attend, you must make sure that someone else will represent you. You could be represented by a money adviser or a solicitor who may recommend that you attend.

Use our directory to find an adviser in your area.

If you are faced with repossession you can get free legal representation on the day of the hearing at most county courts through something called the duty advice scheme. However, you are only likely to have a limited time with your adviser at the court, so it is important to also get legal advice well before your court date.

When will a time order be granted?

When the court is deciding whether a time order should be granted, it will take the following into account:

• if you could have known that you would have difficulties repaying the loan when you took it out
• your payment history – have you been good at making your repayments on time until the recent difficulties arose?
• how your financial difficulties arose – and are these due to unforeseen circumstances? – for example, redundancy or illness
• the conduct of the lender – for example, have they been charging extortionate interest rates?
• whether you will be able to repay the loan eventually and the length of time it might take you to do this.
  

What happens if a time order isn't granted?

If the court doesn't grant a time order, your lender may send you a notice of default if they have not already done so and start standard repossession proceedings.

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