Lenders have seen a massive rise in the amount of people taking out secured loans. Secured loans use property as a security deposit in the case of repayments not being met. This means that if borrowers default on their payments their home could be repossessed.

Unsecured loans which do not put your house at risk are clearly a safer option, but are increasingly hard to get approval for. 20% of applicants for unsecured loans are currently rejected, up from just 5% last year.

Along with higher levels of applications for unsecured loans being rejected, more homeowners are applying for credit. 42,000 homeowners applied for loans in the closing months of 2007 compared with 23,000 last autumn.

The average size of secured loans is substantially bigger than the average unsecured loan, putting houses at an even greater risk. While the typical unsecured loan is for £9,000, secured loans are typically closer to the 22,000 mark.

Homeowners are approved for a loan based on the value of their house and the size of their mortgage. The advantage of secured loans is that they often come with much lower interest rates than unsecured loans, although they come with higher arrangement fees.

Those with poor credit ratings will pay much higher interest on unsecured loans, in some cases as much as 23%. In order to avoid these high interest rates, many will opt for a secured loan.

Lenders can be more generous with their rates and background checks when they have the safety net of a house in case of defaults. Sean Gardener of Money Expert says “Borrowers need to keep in mind they are putting their home at risk”

Source: http://www.onlyfinance.com/Loans-News/12752251-homeowner-loans.aspx