Second Charge Mortgages
On this page you’ll find everything you need to know about second charge mortgages: what they are, how they work, when they’re suitable and who could benefit.
What is a second charge mortgage?
A second charge mortgage is a loan that’s secured on your property, much like a main first charge mortgage. The difference is, with a second charge mortgage the lender is in ‘second position’ – so if you default on your repayments and your property is sold, they’ll only get their money back after the first charge mortgage lender has been paid in full.
They are also known as homeowner loans or secured loans.
The second mortgage is separate from the first mortgage and has its own terms and conditions. It’s important to understand what a second charge on a property is and why it is there.
A second charge loan could help you access extra funds if you’re struggling to get a first charge mortgage, or want to release equity from your property without moving house. They can be arranged relatively quickly, which can be a handy benefit.
Our article How many mortgages can you have? takes a look at how many mortgages can be placed on one property and can a borrower have multiple mortgages?
Who Could Benefit from a Second Charge Mortgage?
A second charge mortgage could be suitable for a number of reasons, including:
- Accessing extra funds when you’re struggling to get a first charge mortgage
- Releasing equity from your property without moving house
- Consolidating debts into one monthly repayment
- Making home improvements
Taking out a second charge can potentially be cheaper if you have bad credit and don’t qualify for a remortgage. It will allow you to keep your main mortgage interest rate in place and pay interest at a higher rate only on the additional borrowing.
One of the most popular uses is releasing equity but without remortgaging, so as not to incur high ERC charges.
Are Second Mortgage Rates More Expensive?
The rates charged on second charge mortgages are generally higher than first charge mortgage rates. However, this doesn’t necessarily mean that a second mortgage is always more expensive overall.
For example, if you have a low rate fixed first charge mortgage, taking out a second charge mortgage with a variable rate could work out cheaper in the long run – even though the initial rate may be higher.
This is because, with a fixed rate mortgage, you could end up paying early repayment penalties if you want to repay the loan early. A second charge mortgage broker will be able to discuss these options with you.
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How Much Can I Borrow with a Second Mortgage?
The amount you can borrow with a second mortgage depends on a number of factors, including:
- The value of your property
- Your income and outgoings
- Your credit profile
- The lender’s criteria
As a general rule of thumb, you could potentially borrow up to 90% of the value of your property with a second charge mortgage. However, this is an upper limit and the actual amount you’ll be able to borrow will depend on the factors listed above.
This figure of 90% loan to value includes your existing mortgage.
What can I borrow the money for?
Lenders are very relaxed and the funds from a second mortgage can be used for any legal purpose. However, it’s worth bearing in mind that if you’re using the money to consolidate debts, you could end up paying more in the long run – even if the monthly repayments are lower.
This is because consolidation loans often have longer repayment terms than other types of borrowing, so you end up paying more interest overall.
If in doubt, have a word with your broker before applying.
What Happens if I Move House?
If you move house, you’ll usually have to repay your second mortgage in full. Some lenders may allow you to transfer the loan to your new property, but this isn’t always possible.
You should also be aware that, if you have a first charge mortgage with a fixed rate, you may have to pay early repayment charges if you want to repay the loan early.
Before taking out a second mortgage, it’s important to compare the different options available to you and speak to an expert to ensure that it’s the right choice for your individual circumstances.
Remortgaging
A secured loan can have an impact on your ability to remortgage, depending on the lender you go through. Some lenders will not allow another charge to be registered at the same time that they grant you a mortgage. Others are more lenient, but may have stricter eligibility criteria. It’s important to do your research before making any decisions.
Not on the High Street!
The high street lenders can’t help every mortgage customer and they prefer the simple, low-risk ones.
If your situation is a bit different or needs a more personalised solution then our brokers can help.
Expert advice, for all situations.
Second Charge Mortgages
It’s important to get expert advice when taking out a second mortgage as there are a lot of things to consider.
Bridging Loans
The most flexible of secured loans and often misunderstood. Bridge loans can be used in so many different ways and can be arranged super fast.
Complex Mortgages
A complex mortgage could be considered any situation that does not fit with the standard lenders. Typically this would be borrowers who have multiple income streams and/or properties of non-standard construction.
Where do I get a second charge mortgage from?
These tend to be provided by the more specialist lenders who do not have branches on the high street. Your mortgage broker will be able to access these and compare loans so that you get a good deal.
You will find that any loan associated with your home will be regulated by the FCA, and this means you will need quite a few documents at the point you make an application.
Your existing mortgage lender must agree in writing to the second charge being placed on your property. If this is not forthcoming then your mortgage adviser can source a new secured lender who accepts equitable charges instead.
Are they available for buy to let?
While the majority of secured loans are taken out by homeowners, they are also available to buy to let investors.
The maximum loan to value is still 75% but there are a good selection of lenders competing for business.
Get expert advice
It’s important to get expert advice when taking out a second mortgage as there are a lot of things to consider, such as whether it’s the right option for your individual circumstances and whether you could end up paying more in the long run.
A qualified mortgage broker will be able to advise you on the best way to move forward. They can also access a wide range of loans from different lenders, so you’re sure to get a good deal.
