Second Charge Mortgages
A second charge mortgage is a secured loan that uses the equity in a borrower’s property as security. Unlike a remortgage loan which repays the existing mortgage and replaces it with a larger loan including further borrowing, a second charge loan means that the current first charge mortgage will remain untouched and additional borrowing will be added as a second charge mortgage so in effect you will have two mortgages on your home.
When opting for a second mortgage on your home, there are several things to consider:
- Will I qualify for a second charge mortgage?
- How much can I borrow?
- When would I need a second mortgage?
- Is a second mortgage better than a remortgage?
- What happens if I move to a new house?
- What are the alternatives to second mortgages?
- What are the risks of a second charge mortgage?
- What are the benefits of a second charge mortgage?
- What else do I need to consider?
Will I Qualify for a Second Charge Mortgage?
In order to qualify for a second charge mortgage, you will need to be a homeowner with enough equity in your property. Eligibility for a second charge mortgage is typically assessed in the same way as a traditional mortgage or remortgage loan i.e. your current income, credit history and general financial status will be considered by your chosen lender.
If you have an imperfect credit history or you are unable to provide proof of income, you may find it difficult qualifying with a major bank or lender but access to finance may still be available via specialist providers, using a brokerage such as UK Property Finance.
How Much Can I Borrow?
Maximum loan amounts are again calculated in the same way as a mortgage or remortgage loan using the equity you currently have in your property, your prove-able income & your general financial status.
Please contact UK Property Finance for a free, no obligation quotation or use our second charge calculator.
When Would I Need a Second Mortgage?
A second charge mortgage is generally considered as a more flexible option than remortgaging and can be useful when significant amounts of money are needed relatively quickly. Reasons for applying for a second mortgage may include the following:
- Difficulties qualifying for unsecured loans.
- Needing to raise more money than is available from remortgage products.
- If you are tied to a mortgage product with penalties if repaid early.
- If you are benefitting from a low interest rate mortgage that you do not want to repay but need to raise additional capital.
- If your current mortgage is on an interest only basis that you still want and would no longer be available if it was repaid.
- If you are raising money for business purposes which is not normally available from a remortgage.
- If you have restricted remortgage options due to age, adverse credit, income, equity etc.
- If the loan is required without redemption penalties at any time.
- Past or present credit issues that restrict the borrower’s access to conventional remortgage loans from mainstream or specialist mortgage lenders.
- An affordable way to raise funds for refurbishments, renovations or extensions to existing properties.
- Consolidation of other debts and outgoings with a single affordable loan at a more attractive rate of interest.
Is a Second Charge Mortgage Better Than a Remortgage?
One of the biggest issues with remortgaging is the way in which it is often necessary to pay an early repayment charge. If you were to pay off your mortgage in full at a date earlier than initially agreed with the lender then you may be liable for an early repayment fee.
Taking out a second mortgage to raise the funds could in many instances be a more cost-effective & flexible option, particularly if you were looking to borrow a smaller sum.
A whole of market brokerage such as UK Property Finance who offer both remortgages and 2nd charge loans will assess your needs and should recommend the best product for your requirements. Contact UK Property Finance for further details.
What Happens if I Move to a New House?
You do not necessarily have to live in the property you intend to secure a second charge mortgage against, provided you have enough equity in it. If you choose to sell the property at any time, you will need to repay the second mortgage in full or obtain agreement to transfer it to a new property.
What Are the Alternatives to Second Mortgages?
Depending on your financial circumstances, there may be alternatives to second charge mortgages:
- Unsecured Personal Loans. Useful if only a smallish loan is required and you have an excellent credit history although interest rates will normally be higher.
- Bridging Loans. Available for much larger loans and potentially quicker to arrange although interest rates can be higher.
- Remortgage Loans. Normally the cheapest option albeit less flexible. Brokerages such as UK Property Finance who offer both remortgages and 2nd charge loans will compare and recommend a remortgage if it is the best product for you. Contact UK Property Finance for further details.
What Are the Risks of a Second Mortgage?
As with any type of loan or mortgage, second charge mortgages should only be taken if you are 100% confident in your capabilities to meet your repayment obligations for the term of the loan.
It is not advisable to apply for a second mortgage without careful consideration and qualified expert advice as the ultimate risk with all types of mortgages is repossession of your property if you fail to meet your repayment obligations.
What Are the Benefits of a Second Mortgage?
Depending on the terms of your current mortgage, a second mortgage could prove far more cost-effective and flexible than remortgaging your home, particularly if there is a sizeable early repayment penalty for early repayment of your current mortgage.
A second mortgage is often quicker and easier to process if you have enough equity in your property. Poor credit applicants can also often access competitive second mortgages especially through whole of market specialist brokers such as UK Property Finance.
What Else Do I Need to Consider?
- It is important to seek independent expert advice from an established and reputable whole of market broker, especially one such as UK Property Finance who offer multiple finance types.
- Most lenders can only be accessed via a broker however applying directly to any specific lender increases the risk of biased & bad advice. Comparing the second charge mortgage market is essential
- Independent lenders beyond the High Street can often provide the most suitable products.
- Ensure you calculate your current and long-term budget before applying
- Speak to an independent broker such as UK Property Finance if you have a flawed credit history
- Never work with a broker or bank that is not fully FCA regulated
- Consider all additional borrowing costs included in the APR