Second Charge Mortgages:
What You Need to Know

Second Charge Mortgages

As a homeowner, you might need extra funds for various reasons such as home improvements or debt consolidation. If you have equity in your home, a second charge mortgage could be an option. These loans, also known as homeowner loans or second mortgages, allow you to borrow against your home’s equity while still maintaining your existing mortgage.

In this guide, we’ll cover how second charge mortgages work, eligibility criteria, and why using a broker like Mortgage One can help you secure the best rates.

What is a Second Charge Mortgage and How Do They Work?

A second charge mortgage allows you to borrow money against the equity in your home, in addition to your first mortgage. This loan is secured against your property, meaning if you default, both lenders can repossess the property. However, the first charge lender will be paid back before the second charge lender.

These loans are commonly used for home renovations, debt consolidation, or other large expenditures. Unlike remortgaging, a second charge mortgage lets you keep your existing mortgage terms and rates while adding a new loan with different conditions.

Eligibility Criteria

The lender will assess several factors to determine your eligibility for a second charge mortgage. These include your financial situation, employment status, age, property type, and credit history. It's a good idea to review your credit report before applying, as any issues could affect your chances of approval.

How Your Loan-to-Value (LTV) Impacts a Second Charge Mortgage

LTV represents the percentage of your property's value that is mortgaged. For a second charge mortgage, lenders will set a limit on the combined LTV of your first and second mortgages. For example, if your home is valued at £300,000 and you owe £120,000 on your mortgage, your current LTV is 40%. A lender capping LTV at 75% would allow you to borrow up to £105,000.

How to Put a Second Charge on a Property

1. Speak to Your Current Lender: Your existing lender must agree to a second charge being placed on your property.

2. Get Your Property Valued: An up-to-date valuation will give you an idea of how much you can borrow.

How a Mortgage Broker Can Help Secure a Second Charge Mortgage

Mortgage brokers can be invaluable when arranging second charge mortgages. They will:

• Access and review your credit reports to ensure accuracy.

• Identify the best lenders, saving you time and money.

• Prepare your application, including securing consent from your current lender.

Remortgaging a Property with a Second Charge on It

Remortgaging with a second charge in place can be complex, as many lenders may view it as a red flag. However, using an experienced broker like Mortgage One can help you navigate these challenges.

Advantages and Disadvantages of a Second Charge Mortgage

Advantages:

• You retain your original mortgage terms and rates.

• No early repayment charges (ERCs) on your first mortgage.

• Longer repayment terms compared to unsecured loans.

Disadvantages:

• You need permission from your existing lender.

• Higher interest rates compared to first mortgages.

• Two monthly mortgage payments can strain your finances.

Alternatives to a Second Charge Mortgage

Before committing to a second charge mortgage, you may want to consider other options:

• Remortgaging: If no ERCs apply, consolidating your mortgage into one loan may be simpler.

• Further Advance: Your current lender may offer additional borrowing under your existing mortgage terms.

• Unsecured Loan: For smaller amounts, unsecured loans are faster to arrange and don’t require a second charge.

What Interest Rates to Expect

Second charge mortgage rates are typically higher due to the additional risk for lenders. The exact rate will depend on your LTV, equity, and outstanding debt. Working with a broker like Mortgage One ensures that you’ll get the best available rate for your circumstances.

Which Lenders Offer Secured Loans?

Secured loans are often offered by specialist lenders rather than high street banks. Contact Mortgage One for Expert Second Charge Mortgage Advice. Taking out a second charge mortgage is a major financial decision. Working with a broker like Mortgage One ensures you get the right product and the best rates.