Arrears on second mortgages and secured loans

A secured loan is when you borrow money that's secured against the value of your home.

It can be a second mortgage or any loan secured against the value of your home.

A secured loan is often called a second charge. The lender who gave you the mortgage to buy your home usually holds the first charge on the property. 

Secured loans are often taken out to pay for home improvements and sometimes to consolidate other debts.

The interest rate may be lower than an unsecured loan such as a personal loan.

What to do if you've missed payments

You need to:

• look at your income and outgoings

• prioritise your debts

• draw up a financial statement

• agree a repayment plan with your lender 

What your lender must do before court action 

Repossession of your home should always be a last resort.

Your lender must contact you and explore alternatives to repossession if you fall into arrears on your secured loan. 

What happens if your lender takes court action

It's very important to attend the repossession hearing. 

The court can help you stay in your home if you can afford it and you have a realistic plan to repay any arrears over time.

What if your home is repossessed

You could be evicted by bailiffs if the court makes:

• an outright possession order and the date for possession has passed

• a suspended possession order and you break the terms of the order

If you cannot prevent the eviction, the bailiffs will give the keys to your lender.  

The lender will then take steps to sell the property, usually through an estate agent.

Your first mortgage lender is repaid first when the home is sold. The second lender is paid from what is left once the first charge mortgage is paid off.

If there's not enough equity in the property to pay off all the mortgages and secured loan, it's called a mortgage shortfall.