If you’ve been looking for a loan recently, chances are it’s been tougher than you expected to get it over the line. Banks remain coy about lending, interest rates are still comparatively high and some brokers are charging large fees for pushing through deals. 0% credit cards and small personal loans are great up to a point, but what about those who need bigger loans for doing up a house (er, me!) or helping with school fees once the VAT hits? A Home Equity Line of Credit or HELOC loan is something I’ve come across just recently (currently the only FCA-regulated provider in the UK is Selina Finance), but what are the pros and potential pitfalls?

HELOC is a loan designed only for homeowners

No home, no loan! If you’ve tried to increase your mortgage but your bank or building society won’t budge, a HELOC will allow you to access the equity in your property. For example, the sum starts at £10,000 up to a maximum of £250,000 for a 30 year term at Selina Finance. Crucially, the loan doesn’t affect the rate or repayment on any existing mortgage you have in place, and – the bit that’s most tantalising – you only pay interest on the money you draw down, rather than the amount borrowed. So if you set up a facility to access £100,000 for house renovations but end up spending £40,000, the £60,000 unspent remains interest-free. Think of it as a bit like a credit card. Also like all credit cards, it does need to be paid back! Obviously you need to be confident you can afford the payments, otherwise your house is at risk.

It’s super-flexible

For the first five years there are unlimited drawdowns, repayments and re-drawdowns up to your credit limit. This gives real flexibility for your projects, whether that’s money left for a bathroom once you’ve built your kitchen, or a re-drawdown if school fees are higher than expected.

Pay it off as early as you like without penalties

You can put unlimited funds back into your account or pay off your loan entirely with no early payment penalties. Be aware though that the credit limit slowly reduces from day one, so if you arrange a facility for £50,000 but don’t use the money for three or four years, when you do come to use it the amount available will be less – the same principle as a typical amortising term loan with monthly capital and interest payments.

Save up to £1995 on arrangement fees

Even after including Selina’s product fees (starting at £995) they estimate a saving of £1995 on typical broker fees. You can do your own maths on that one, but on the face of it, we’ll take that saving, thanks very much.

Get a decision without affecting your credit rating

You can assess whether the product is right for you via a quick phone call to an advisor, where a soft credit search will be carried out at no risk to your credit rating during that conversation. Once you accept the offer, though, it’s worth knowing that a hard search will leave a footprint on the file that will be seen by other lenders.

For more information on financial services, visit the Citizens Advice Bureau.

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