Updated: April 25, 2022

Second Charge Mortgages

Wondering how to put a second charge mortgage on a property? Weighing up the pros & cons? Find out if this is the right move for you in our expert guide!

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Pete Mugleston

Author: Pete Mugleston - Mortgage Expert

Updated: April 25, 2022

If you’re looking to make home improvements, consolidate debt or you need to raise funds for any other reason, you could take out a second charge mortgage.

This comprehensive guide rounds up everything you need to know, including what second mortgages are, how they work and how to increase your chances of getting approved for one.

Read on for more information or jump to the section that’s relevant to you via the links below…

What are second charge mortgages?

A second charge mortgage is a secured loan you can take out against a property you already have a mortgage on. It’s a completely new loan and can be from a different lender to the one you have your existing (or first charge) mortgage with.

Second charge mortgages – also known as homeowner loans or second mortgages – enable you to make use of the equity you have in your property to raise additional finance and can be a good alternative to remortgaging.

Don’t confuse them with second home mortgages, which people take out to buy additional property such as buy to lets or holiday homes.

If you take out a second home mortgage, you have two separate loans on two different properties. With a second charge mortgage, you’ll have two mortgages to repay on one property.

How is remortgaging different?

Remortgaging is also a way to unlock equity in your home but when you remortgage, you switch from your current mortgage deal to a new one, either with your existing lender or a different provider, and your lender adds the amount you want released to your loan.

With a second charge mortgage, your primary mortgage deal stays exactly the same. You simply take out another loan secured against your property.

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What are their benefits?

The biggest advantage of a second charge mortgage is you can release equity from your property without having to remortgage. While there are plenty of benefits to remortgaging, it won’t be right for everyone.

You might consider a second charge mortgage over remortgaging if:

  • You’re on a competitive rate with your existing mortgage and you don’t want to lose it.
  • You want to avoid paying a hefty early repayment charge for switching deals before the end of your current term.
  • Your personal circumstances have changed – for example, your credit score has gone down – since you took out your first mortgage and you’ll likely end up paying a higher interest rate on your entire mortgage, not just on your second charge.

Another big advantage of second charge mortgages is they tend to be approved faster (as long as you meet all eligibility criteria) than unsecured alternatives, which is handy if you need access to funds quickly. You’ll probably also get better terms and more competitive rates than you would with unsecured lending (more commonly referred to as personal loans).

Things to consider

There are plenty of benefits to second charge mortgages but there are also potential downsides you need to consider carefully.

The main one is the loan is secured so you could end up losing your home if you don’t keep up with your repayments. Remember, you’ll effectively have two mortgages to repay so you need to make sure you’re financially stable enough to take on such a big commitment.

The rate of interest on your second charge loan will also be higher than the rate on your primary mortgage. If your credit rating is poor, you could end up paying an even higher rate. Depending on the amount you want to borrow, it may be cheaper to opt for a different product. For example, if you need less than £25,000, it could be worth looking into an unsecured loan.

How to put a second charge on a property

Getting approved for a second charge mortgage can be trickier than for a primary mortgage. Here are three simple steps you can take to boost your chances of getting your application accepted…

Step 1: Talk to a specialist broker

Taking out an additional loan is a big financial commitment as you’ll effectively be repaying two mortgages. That’s why the first thing you should do is seek advice from a mortgage broker who specialises in this niche area. They’ll be able to review your circumstances and advise whether this type of loan is right for you or not.

If it is, a broker can tell you which lenders to approach and which to avoid. Not all lenders offer second charge mortgages so a broker who’s familiar with the market can save you the stress and expense of wasted applications. They can also secure the best rates, negotiate with lenders on your behalf and get access to exclusive deals.

We have a network of highly experienced brokers ready and waiting to help you. Get in touch and we can arrange for one who specialises in second charge mortgages to contact you directly.

Step 2: Get permission from your current mortgage lender

You’ll need to get written permission from your existing mortgage provider – known as “consent to 2nd charge” – before you can apply for a second charge mortgage. This should be done as early as possible as some lenders are more willing than others to give consent and some can be slow to provide the right documents.

Step 3: Get your property valued

When you take out a second charge mortgage, the amount you’ll be able to borrow will depend on how much equity you have in your property. The more equity you have, the more you can borrow.

The best way to establish how much equity you have is by getting an accurate valuation of your property. An estate agent is best placed to tell you how much your property is worth. When you know this figure, subtract the amount remaining on your mortgage to work out the equity you have. Your secured loan provider may also wish to obtain a valuation on your property.

For example, if your property is worth £400,000 and your outstanding balance is £350,000, you have £50,000 of equity in the property.

Eligibility criteria

You’ll need to meet certain criteria to be approved for a second charge mortgage. All lenders will have different criteria but here are some general requirements you should expect to meet.

Equity in your property

This is the first thing a lender will look at as it will determine whether they’ll approve your second charge loan and if they do, how much they’ll be willing to lend you. Each lender will have their own parameters, but if you have insufficient equity, your application will probably be rejected straightaway.

The loan to value (LTV) for second charge mortgages is based on the equity you’ve built up in your property. The typical LTV is 75%, but some lenders may go higher, even as far as 100%, depending on your individual circumstances.

Your credit history

Having a proven track record of paying back your mortgage and any other loans will help improve your chances of being approved. Don’t panic if you have a poor credit history. You can still get a second charge mortgage. You may just need the help of a specialist lender. A broker with experience arranging bad credit mortgages can identify these lenders for you.

Affordability

Lenders will carry out a series of checks to make sure you can afford a second mortgage. Their main consideration will be whether your income can cover two loans at the same time. They’ll do this by carrying out a thorough assessment of your expenditure versus your income.

Affordability will be based on the remaining balance of your first mortgage as well as the proposed amount of the second charge mortgage. Most lenders will let you borrow 4.5 times your annual salary but some will offer as much as 6 times.

Who offers these loans?

Some high street lenders offer second charge mortgages. At the time of writing, these include:

  • Santander
  • Halifax
  • Lloyds Bank
  • Natwest

These providers, however, may only lend to existing customers and won’t necessarily offer the cheapest rates.

You may be better off using a specialist lender, particularly if your situation is slightly more complex, for example, you have bad credit. Some specialist names include: Prestige Finance, Masthaven and Evolution.

A specialist broker can advise you on the best lender for your circumstances.

Typical rates

Second charge mortgage rates tend to be higher because lenders consider them riskier investments. That’s because the first charge mortgage provider will always take precedence if you default on your repayments.

Lenders will base their rate on your individual circumstances, but you should expect to pay in the region of 6% to 8%. You could pay even more if you opt for a second charge interest-only mortgage.

Your current lender may offer you an additional loan but it’s wise to shop around.  A whole-of-market broker is best placed to find you the most competitive deal.

While rates are on the high side, they tend to be lower than rates on unsecured loans.

Can you remortgage if you have a second charge on the property?

Yes, in theory, but it can be complicated. Far fewer lenders will consider remortgaging your property if it has a second charge so your choice will be more limited.

Some lenders will reject your remortgage application straight away because they’re either wary of second charges (it could indicate you’ve had to consolidate debt in the past) or they simply don’t have the technical capabilities to capture the involvement of another lender.

It’s worth remembering that lenders who are willing to lend to you will take your second charge loan repayments into account when assessing your affordability. This could mean you end up paying a higher interest rate.

Connect with a second charge mortgage expert today

Second charge mortgages are worth considering if you’re looking to unlock equity from your property. However, they come with big financial implications so you should always seek independent financial advice before making any decisions.

A specialist broker can advise you on whether this type of loan is right for you and match you with the best lender for your circumstances.

We work with brokers who have a track record of helping people secure second charge mortgages. Give us a call on 0808 189 0463 or make an enquiry and get matched with an expert today for a free initial conversation.

We hand-pick all the advisors in our network and rigorously vet them so you know you’re getting the best possible advice.

FAQs

Are second charge mortgages regulated?

Yes, they’ve been regulated by the Financial Conduct Authority (FCA) since 2016. This means lenders have to meet certain requirements. For example, they must offer a minimum 7 day ‘cooling off’ period and provide an accurate explanation of a product’s features.

Can I get an interest-only second charge mortgage?

Yes. You may end up paying a higher interest rate but your monthly repayments will be lower. You’ll need to make sure you have a viable repayment plan in place so that you’ll be able to pay back the loan at the end of the term.

How long are second charge mortgage terms?

Repayment terms tend to be between 3 and 30 years. The term of a second charge mortgage can be different to the first charge mortgage.

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Pete Mugleston

Pete Mugleston

Mortgage Expert

About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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