Missing secured loan repayments and your home

A secured loan is money you borrow that is secured against an asset you own, usually your home¹. Because the property is the security, the lender can take it and sell it if you cannot repay¹. That is the central fact of secured borrowing, and it is why the warning "Your property may be repossessed if you don't keep up the repayments" appears on almost every secured loan advert².

Missing a payment does not mean you lose your home immediately. Repossession is a court process, and lenders must follow rules before they can start it. In Scotland, for example, lenders must meet pre-action requirements: sending clear written information about how much is owed and any late payment charges, taking reasonable steps to agree a repayment plan, avoiding legal action if arrears are likely to be repaid soon, and giving information on managing debts and getting debt advice³.

What matters most is what you do in the weeks after a payment is missed. A repayment proposal can be made at any stage of repossession⁴, and the earlier you contact the lender, the more options remain open. Free, impartial help is available from debt advice charities and from the Financial Ombudsman Service if a complaint cannot be resolved with the lender.

A secured loan puts your home up as security

A secured loan means you borrow against an asset, such as a house⁸. The lender's protection is the property itself: your home acts as a form of security for the lender, as they could repossess and sell the property if you fail to meet the repayments⁹. Secured loans allow you to borrow money while using your home as security, also called collateral¹⁰.

This is the same principle that underpins a mortgage. The Support for Mortgage Interest scheme, for example, is a government loan secured on your house the same way a mortgage is¹¹. The difference is one of purpose and size: a mortgage buys the property, while a secured loan raises money against a property you already own.

Secured loans are also called homeowner loans, and they are typically used for debt consolidation, home improvements or other large expenses. The lender registers a charge against the property, which means the debt is tied to the property rather than to you personally¹². If you sell, the charge must be cleared before the sale can complete.

The risk is not theoretical. If you fall behind or cannot repay the loan, the lender can repossess your home¹³. That is a stronger remedy than an unsecured lender has, and it is why secured borrowing is treated differently by regulators, by the courts and by debt advisers.

Second charge: how a secured loan sits behind your mortgage

Most secured loans taken out by homeowners are second charge loans. A second charge loan is secured against a property that already has a mortgage or first charge outstanding¹⁴. A secured loan is also known as a second charge mortgage¹⁵.

The ranking matters when a property is sold. A second mortgage is secured on the borrower's property, except that any claims are subordinate to the first lender¹². In practice, the secured loan sits behind the first charge mortgage, which is paid off first on sale¹⁴. If you still have a mortgage on your property, a bridging loan will be a second charge loan, meaning that if you failed to meet repayments and your home was sold to pay off your debts, your mortgage would be paid off first¹⁶.

The same principle applies to government schemes. Where a Support for Mortgage Interest loan needs to be secured, the Department will place a charge, or in some cases a mortgage, over your property to secure the loan¹¹.

For a borrower, the practical consequence is straightforward. A second charge lender's ability to recover depends on what is left after the first mortgage is cleared. If the property is in negative equity, or if house prices fall, the second charge lender may recover little or nothing from a sale, and may pursue you for the shortfall instead.

What happens when you miss secured loan repayments

If you miss your mortgage repayments and cannot agree a repayment plan, your mortgage lender might start court action to repossess your home¹⁷. The same applies to a secured loan: if you have a mortgage or secured loan on your home and you fall behind on payments, the lender could take court action to repossess your home¹⁸.

The sequence usually runs like this:

1. A payment is missed. The lender contacts you, and arrears letters begin.
2. The lender may offer a repayment plan to clear the arrears over time.
3. If no plan is agreed, the lender issues a formal default notice and, eventually, court proceedings.
4. A court hearing takes place. You can attend and propose a repayment plan.
5. If the court grants a possession order, the lender can apply for a warrant to evict.

At every stage before the final order, a repayment proposal can be made⁴. Lenders may also postpone repossession action if you make a claim on your mortgage payment protection policy¹⁹.

Missing payments has a second consequence: it shows on your credit file and affects your credit score¹³. Missing a mortgage payment can have a serious impact on your credit score and your ability to get more credit in the future²⁰. Missing payments can also lead to extra charges²¹.

Can the lender repossess my home?

Yes. If you cannot repay what you owe, the lender can repossess the house⁸. If you have a mortgage or secured loan on your home and you fall behind on payments, the lender could take court action to repossess your home, which could be sold to repay what you owe²⁴. If you fall behind or cannot repay the loan, the lender can repossess your home¹³.

Repossession is not automatic, and it is not the lender's first step. The court process exists precisely so that a judge can consider whether a repayment plan is realistic. Courts may be willing to make an order for sale allowing the borrower to sell the property themselves, preventing the lender from selling for a limited amount of time, if you can show you have received a better offer from a serious buyer²⁵.

If the home is sold, the money is distributed in a set order. Your lender and any other secured creditors get their money back, then you get any money left over²⁶. Your lender must use the money from the sale to pay off the court costs, estate agent's and solicitor's bills, the mortgage and any second or third mortgages⁵. If the sale does not cover your debt, you may be asked to pay this back²⁷.

There is one exception worth knowing. If you have a Support for Mortgage Interest loan, you will not be asked to sell your home to repay it¹¹.

Time Orders and other ways to get time to pay

A Time Order is a way of asking the court to give you more time to pay if you have fallen behind with the payments on your mortgage or secured loan⁶. You cannot usually apply for a Time Order unless the lender takes court action to repossess your property⁶. The provider can apply for a Time Order, a special order from the courts that gives you time to pay⁷.

In Scotland, the equivalent mechanism is a Time to Pay Application. An order for time to pay is an order of the sheriff that the respondent must pay the claimant a sum of money in a particular way, such as by instalments or by a delayed payment²⁸.

Beyond the courts, there are other routes to breathing space:

• A repayment plan with the lender. You can propose one at any stage, and lenders must consider it.
• Pre-action requirements in Scotland. Lenders must take reasonable steps to agree a repayment plan before starting legal action³.
• Court duty help desks. Available at many courts on the day of a possession hearing, offering free advice²³.
• Debt advice charities. Free, impartial help with negotiating with lenders and understanding your options.

If you have a mortgage or secured loan on your home and you fall behind on payments, the lender could take court action to repossess your home, which could be sold to repay what you owe²⁴. The earlier you engage, the more of these options remain available.

Repaying early, moving home or replacing the loan

A secured loan is tied to the property, so moving home usually means settling it. If you move house, you will usually be expected to pay it off at that point too¹⁰. The loan is registered as a charge, and the sale cannot complete without clearing it.

Early repayment can trigger charges. There may be a big redemption penalty if you repay your loan early or switch to a better deal in the early years of your mortgage²⁹. Early repayment charges may be payable if you remortgage before your current mortgage deal expires³⁰. Some products work differently: with a Flexi Fixed for Term mortgage, you can move home and take the mortgage with you or pay it off early without being charged an Early Redemption Fee³¹.

If you are considering replacing a secured loan with a remortgage, the same early repayment logic applies to your existing mortgage deal. A remortgage for home improvements, for example, may trigger early repayment charges if you remortgage before your current deal expires³⁰.

Some unsecured loans offer more flexibility. A Post Office home improvement loan, for example, gives you the option to pay off the loan in full sooner, which could save you money on interest compared with paying it over the full term³². That flexibility is one of the trade-offs between secured and unsecured borrowing.

Where to get free help

If you are struggling with secured loan repayments, free and impartial help is available. Debt advice charities can help you negotiate with lenders, understand your options and, where appropriate, apply for a Time Order. Court duty help desks operate at many courts on the day of a possession hearing²³. The Financial Ombudsman Service can look at complaints about how a lender has handled your case if you have already complained to the lender and are unhappy with the response.

If you are in Scotland, the pre-action requirements give you additional protection: your lender must send clear written information about how much is owed and any charges for late payments, take reasonable steps to agree a repayment plan, avoid legal action if arrears are likely to be repaid soon, and give information on managing debts and getting debt advice³.

If you are in Northern Ireland, advice on avoiding losing your home is available from nidirect¹⁹.