House Collateral: Does It Impact Your Mortgage?

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When you’re looking to purchase a home in the UK, there are a lot of things to know before you go in. You may be asking yourself how to get a mortgage, and what exactly bankers want when they tell you about ‘collateral’. Fear no more- here are all of the answers to how, exactly, collateral works.

What is Collateral?

If you’re looking for a meaning for collateral, you’ve come to the right place. Collateral is what you’re leveraging your loan against; if you fail to pay the loan, the bank gets to take your collateral from you. Collateral is often something very expensive to make up for the loan. If you’re purchasing a car, you’ll use that car as collateral. You may be asking– “Can I use the property as collateral for a mortgage?” The answer is yes! In fact, when you take out a mortgage, the bank is probably expecting your new home to be used as collateral in your loan. Any damages to your house, though, will count as collateral damage, and you may have to talk to your bank to renegotiate your mortgage contract if the damage is too severe.

How Does Collateral Work?

Since collateral is basically just an expensive item that the bank gets to take away if you don’t pay your loans, it’s understandable that you’re wary to put your home or property in. However, using collateral in a loan can actually help you. When you use collateral loans, you’re more likely to be approved and your bank will give you the money. You’re also going to earn lower interest rates on your loan, and you’ll have more space to negotiate how much money the bank gives you. However, if you do choose to jump for that collateral loan, make sure to keep your payments steady, otherwise, the bank may repossess your collateral.

Can You Use A House As Collateral For A Mortgage?

Of course, you can use your home as collateral for a mortgage! Using property as collateral for a mortgage in the UK is the most common way to do so, and it helps to guarantee that you’ll actually be able to purchase or build your new home. The bank isn’t worried that you’re going to default, because you want to continue living in your nice new home.

What is a Collateral Warranty?

If you’re building a home, however, you might be a bit more concerned with collateral warranties. What is a collateral warranty? Collateral warranties are contracts that are primarily employed during construction. If there’s something dangerously wrong with the house after it’s built, and neither the bank nor the homeowner will be able to get their money back, the bank can instead choose to take the construction crew to court. Since it’s not the homeowner’s fault that the house is defective, it’s simpler and easier to fight the construction crew to get the loan money back.

Using Property as Collateral for a Mortgage in the UK

So what are collaterals? They’re simply something you can use to your advantage when trying to get a loan. If you’re still asking “Can I use the property as collateral for a mortgage?” just know that the answer is always yes. In fact, your bank is probably expecting it. Don’t fear and don’t ask how collateral works; now, with this article, you’ve got the right idea.

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