What You Should Know About 125% Loans in UK
The market in the last few years has changed drastically when it comes to real estate loans. If you own your home, and you try to get it refinanced because the interest rate is lower you will find that the value of your home may have dropped drastically. This is possibly because so many people have lost their homes due to foreclosures. It is a very different market out there now to what it was just a few years ago. For example, a couple of years ago, 125% secured loans were commonplace. There were so many lenders competing to get your business at times, some of them would over-lend on properties just to get you on board.
There were also a lot of loan products out there, so if you didn’t automatically qualify for a loan, the lender would put you into an adjustable mortgage so you could qualify. Nonetheless, lenders really tried to get you financed with a lot of creative financing. Because of these lending practices, coupled with the fact the economy took a turn for the worse, people lost their jobs, borrowed money with an adjustable loan, after which the interest rate went sky high and they lost their homes.
The 125 loan is one of those products that allows you to borrow more than your home is worth. Does this sound like a good lending practice?
125% Secured loans in the UK are a bit different because of banking regulations there. The secured portion of the loan can be up to 100% of the value of the home. The remaining 25% would be classified as unsecured. So maybe the title of these loans in the UK should be changed to partially secured. Nonetheless, be cautious with this type of borrowing.
Of course you still need to have all the normal guidelines met such as good credit, stable employment and the ability to pay back the loan. However, there are lenders out there that charge excessive rates and fees to offset the risk and still lend you the money, even if you don’t meet regular lending standards. Just be cautious and make sure you have an exit strategy to get out of this type of loan if you need to.
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