Direct Home Loans
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Direct home loans are very common in the UK. Here an individual can borrow money using their property equity as collateral. The borrower tends to repay the debt using their income over a number of years in order to pay back both the capital direct home loan and interest charges. It is important to note that this is a form of secured loan whereby the bank often uses your home as a form of collateral. Direct home loans are considered the least risky type of personal loan by the bank/lending institution and hence rates tend to be relatively low. The rate of a direct home loan is closely linked to the bank of England’s base rate with an additional risk premium applied over and above the risk free rate (usually measured as the rate offered on long-term government bonds). By choosing a fixed home loan the monthly rate you pay wont change. However if you choose a variable rate loan the rate will often change in line with BOE interest rates.
In the UK house prices have been rising at annual rate of over 10% over the past ten years. This has lead to large positive equity as a result of house prices exceeding mortgage repayments which has allowed homeowners to take on extra debt in the form of personal direct home loans. While house prices continue to increase at this stellar rate this is no concern. However a slowdown in the UK property market will lead to static or falling house prices and direct home loan borrowers will not only have to pay of their home owner loans. If you default consistently on repayments for your direct home loan, your house may be repossessed by the loan lender to pay off your debts. There is no need to be worried by the threat of repossession. Lending institutions would much rather be paid the debt owed via timely and steady repayments. Repossession is always the last resort and is more costly for the lender as a means to recoup the debt. Consequently they will only offer you affordable personal direct home loans given the information you provide them. Borrow within your means and you are most likely to be fine.
The length of your direct home loan and payment amounts depend entirely on your circumstances. Many people choose to pay this type of loan over twenty plus years. This allows the homeowner to pay manageable lumps of money which won’t dramatically compromise ones lifestyle. Here is the compromise. If you take out a direct home loan for a short period of time, then although payments will be high the interest you occur will be low. However, high payments can cause huge amounts of stress and compromise one’s lifestyle. On the other hand, repaying your loan over twenty or more years leads to much less stress on your lifestyle as payments are smaller, but on the downside interest payments tend to be much higher and hence overall you’ll be paying a larger amount for your direct home loan. The choice is entirely up to you!
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