Second Charge Mortgages
A second-charge mortgage is a viable alternative to remortgaging, allowing borrowers to achieve their financial goals in the most cost-effective way.
Ask for advice
What is a second-charge mortgage?
A second charge mortgage, also known as a second charge secured loan, is another loan secured against your property that can be used to generate funds for a variety of reasons, such as debt consolidation or home improvements. It can be useful if you are unable to borrow more from your current lender.
Why have a second mortgage?
Taking out a second mortgage may be the best way to get the additional finance you need without disrupting your existing mortgage. You may have a great rate or interest-only mortgage that you don’t want to lose by remortgaging. You may be unable to get a further advance from your existing provider, or you might want to avoid a high early repayment charge.
How do second-charge mortgages work?
Second-charge mortgages run alongside your current mortgage, which means your interest rate on your first mortgage remains unchanged, and your existing lender won’t impose early repayment charges as is common with remortgaging.
You may need your first mortgage lender to give permission for you to take a second mortgage on the same property.
What can a second mortgage be used for?
You can use the equity in your home released by the second loan to pay off debts at higher interest rates, such as personal unsecured loans or credit cards.
The money can be used to fund home renovations or make a larger purchase, such as a car or family holiday. You could pay for a wedding or education fees, pay a tax bill, inject funds into a business, or you could even use the money to get a buy-to-let property.
Pros and cons of a second charge mortgage
As with many financial decisions, you need to weigh up the pros and cons:
Pros of a second charge mortgage
- Can be cheaper than unsecured debt, such as a credit card
- Allows you to keep a low mortgage rate in place if you have one
- Longer terms than unsecured debt, up to 25 years
- It may be an option even if you have a poor credit score
- May allow higher income multiples or borrowing amounts than normal mortgages
Cons of a second charge mortgage
- You’ll have two loans on one property
- higher interest rates than first charge mortgages
- If you can’t manage the payments on both mortgages, you could be repossessed
- Longer term than unsecured may mean paying higher interest overall
- If you are consolidating debt, you need to be disciplined not to start using credit cards and personal loans again afterwards, or you could end up in a worse place than before you took the second charge.
Second charge eligibility criteria
It’s likely that your first and second charge mortgages will be with different lenders and have different interest rates and different terms. So, you’ll need to meet the second-charge lenders’ eligibility criteria.
Criteria often include:
- having sufficient equity in your home,
- having enough income to make both mortgage payments and
- having an acceptable credit score for the second lender.
Second mortgage rates are often a higher interest rate than your existing mortgage as the second lender is accepting more risk.
If you default on your mortgages and your property is repossessed, the first charge lender takes priority over the second charge lender meaning the original mortgage will be paid back first.
How can Simmonds Mortgage Services help you?
We’ll review your personal circumstances and advise you on your options for second-charge mortgages. We’ll look at your current mortgage payments, how much equity you have and the impact a second charge might have on your monthly payments.
Simmonds Mortgage Services is an experienced mortgage broker with access to the whole of the market so you can get the right mortgage secured against your property to suit your current situation.
Call us on 01184 693037 for a free chat today.
FAQs about second charge mortgages
Is a second charge mortgage the same as a second charge loan?
Yes, the terms are interchangeable - they both mean you have taken two mortgages against the same property.
Can I get a second mortgage if I'm self-employed?
Yes, self-employed applicants can release equity and raise money this way as long as they meet the eligibility criteria.
Can a mortgage lender refuse a second charge?
Yes, if you do not meet the second lender's eligibility criteria or the first lender does not give permission for the new mortgage, your application can be refused.
Do second charges impact your credit rating?
Yes, your credit rating is impacted by any credit you take, whether secured or unsecured borrowing.
Taking a further advance from your existing lender or a second loan from a new mortgage company will temporarily lower your credit score. However, if you demonstrate that you are managing the monthly repayments, this will have a positive effect on your score.
How much can I borrow on a second mortgage?
The amount you can borrow will depend on the level of equity in your property. Many second lenders will offer a maximum loan-to-value of 75%.
Are there early repayment charges on second-charge mortgages?
Yes, second mortgages may have early repayment charges, just as first mortgages can. Make sure you understand all the small print before taking the loan.
Do I need to go to specialist lenders to get this type of mortgage?
No, it's not necessary to go to a specialist lender, as there are several UK banks and building society lenders that will offer second mortgages. However, it's a good idea to use a mortgage broker who can look at all the possible options and secure the best product for you more easily.
Are second mortgages cheaper than getting a personal loan?
You will likely pay significantly more extra interest on a personal loan than a second mortgage but don't forget to take into account any fees and other charges, such as broker fees or mortgage company arrangement fees, when working out the best way to borrow the money you need.
How do I decide whether to remortgage or use a second-charge mortgage?
It's important to take into account all the costs associated with each option before you decide which way is right for you, including whether you'll pay more interest overall by taking both mortgages.
If you need help assessing your options, Simmonds Mortgage Services can give you advice on your choices.