Secured property mortgages is a term often tirelessly noted in banking literature and is not something to get confused about. The first thing to notice is the term mortgage and then the secured property bit. In fact, it’s pertinent to realise that most mortgages are secured property mortgages.

The term simply relates to the fact that the lender or mortgage owner (a mortgage is an asset on the books of the lender) has a charge on the property on which the loan or mortgage is secured.

Mortgage backed securities are secured on a wide range of property, including housing, motorboats (marine mortgages), student loans, automobiles (car loans) and many more assets. The quality of the collateral will have a large impact on the rate a secured property mortgage lender will charge you for borrowing funds. For example, consider you own a house in which you own 90% equity and is worth £500,000. If you want to secure £50,000 for some home improvements and are prepared to secure this property mortgage on your home, the bank is safe in the knowledge that your house would have to fall in value more than £450,000 in order for them not to be able to recover the full value of their secured property mortgage asset.

In the case noted above, the premium rate a lender would be prepared to offer you for the secured property mortgage loan above the risk-free-rate would be low. The difficulty that financial markets faced from July 2007 were caused as a result of aggressive secured property mortgage lending where lenders were not incentivised to properly inspect the borrowers and the assets upon which the mortgages were being secured. By re-packaging these mortgage assets in collateralised debt obligations and trading these derivatives between investment banks on a global scale, the true nature of the underlying collateral was hidden.

If you have any questions about secured property mortgages that you feel have not been covered in this article, please feel free to get in touch and we’ll answer your question as soon as possible.