With all secured loans, the borrower offers something that has value as security for the loan so that, should they default, the lender can sell that asset (or, in financial speak, ‘realise the security’) and be paid back from the proceeds.

The most common form of secured personal lending is the mortgage loan for house purchase, the security being a first charge on the borrower’s private place of residence.

When property values increase significantly, some people borrow against this increased equity in their home. They might, for example, take out a further loan from their existing mortgage lender, arrange a second mortgage from a different lender or re-mortgage for a bigger amount. The loan is then used to fund purchases such as lifestyle changes.

Most secured lending, therefore, is secured on the house, even where its purpose is not directly or indirectly related to house purchase or improvements on the property.