On what basis does the borrower grant secured loans?

Homeowners in the UK have a great advantage over others, as they can easily get loans and that too on a reasonable rate of interest with added advantages like flexible repayment options. Homeowners need not hunt for loans like tenants and other non-homeowners. Lenders in the UK loan market prefer granting loans to those who can pledge their home as security, as personal insolvencies in UK are increasing at an alarming rate, and lenders don't want to take chances by offering unsecured loans.

Secured loans are availed by borrowers who need hefty amounts at low interest rates. These loans are beneficial for the lender as well as the borrower. Secured loans are granted on the basis of the following:

Home Equity- It is the market value of the house minus all the debts incurred against the home. This may include the first charge on the loan. The amount given by the lender as secured loans is directly proportional to the home equity. So, home equity is the most important factor for the lender. Nowadays, the lenders also give up to 125% of the equity value if the borrower has a good credit score or DTI ratio.

Credit Score- It can be defined as the score ranging from 300 to 900 which reflects the credit worthiness of a borrower, and is primarily determined by timeliness of past loan payments. Anything above 700 is a good credit score, with which a borrower has a good chance of acquiring a loan. However, in case of secured loans, if the home equity value is good enough, lenders sometimes may ignore a bad credit score.

Disposable income- This reflects the paying capacity of the borrower and is judged by the DTI i.e., Debt to income ratio. DTI is calculated by dividing the incomes of the borrower by his expenditures and if it comes out to be greater than 3.6, there are good chances for the borrower to avail a loan comfortably. The lender doesn't usually ignore DTI because a borrower may have equity in his house; but, to repay the loan, his income should be greater than his expenses.

So, lenders granting secured loans keep in mind the above stated factors.