What is a second charge mortgage?

A second charge mortgage is a loan that is secured by the equity you’ve accumulated in a property you own. Homeowners have the option of using this instead of remortgaging or getting an unsecured loan.

If you get a second charge mortgage, your current first charge mortgage will still remain active. You will have two mortgages on the same property. If you default on either of them, you might risk losing your home.

Is a second charge mortgage the same as a secured loan?

Yes. The phrases second charge mortgage and secured loan can be used interchangeably. A second charge mortgage can also be referred to as a secured loan.

• Mortgage for homeowners
• A loan secured by the equity in a home.
• A second mortgage is an additional loan taken out on a property that already has a primary mortgage.
• A loan for consolidating debt.

How do second charge mortgages work?

A second charge mortgage functions similarly to a standard mortgage. You take out a loan and pay it back, along with interest, in monthly payments over a set period of time. Second charge mortgages usually have terms ranging from five to 25 years. You can typically borrow amounts starting from £1,000 up to six figures, based on your income and the equity you hold in your home. Second charge mortgages can have either a fixed or variable interest rate.

How can you get a second charge mortgage?

To obtain a second charge mortgage, you will require three items:

• adequate ownership in your property
• A sufficient income to cover both mortgages.
• A credit rating that is satisfactory to the second charge mortgage lender.

When you take out a secured loan or second charge mortgage, you will probably incur legal, administration, and valuation fees. If you decide to pay off the loan early, you may incur early repayment charges (ERCs).

How much can you borrow on a second charge mortgage?

The amount you can borrow on a second charge mortgage is based on the equity you have in your home.

Equity is the portion of your property that you fully own, calculated as the property’s value minus the balance of your primary mortgage. If your property is valued at £100,000 and your mortgage balance is £60,000, you will have £40,000 in equity, which is 40% of your property’s value.

Many second charge mortgage lenders set a maximum loan-to-value (LTV) for the total of both first and second charge mortgages on a property.

Pros vs Cons

Pros:

• It may be less expensive than using unsecured loans like credit cards.
• You can maintain a low mortgage rate if you have one.
• Approval is more likely if you have a poor credit score.
• Unsecured borrowing can have terms that extend up to 25 years.

Cons:

• There will be two mortgages on a single property.
• If you’re unable to keep up with payments on both mortgages, you may risk losing your home.
• Choosing a longer term means you’ll pay more interest in total.
• Using it for debt consolidation needs discipline.

Can you apply for a second charge mortgage to pay off debts?

Yes. You can use the second charge mortgage to pay off single or multiple other debts. This is known as debt consolidation.

A second charge mortgage debt consolidation loan is a type of second charge loan used mainly to pay off existing debts, including other secured loans, unsecured loans, and credit cards.

When you use the credit to pay off these debts, you’re combining them into a new second charge loan. Second charge loans typically offer competitive interest rates, which means the consolidation process can help the borrower save on interest payments.

Using a second charge to pay off debt will increase the debt on your home.

Can you apply for a second charge mortgage for home improvements?

Before getting a second charge mortgage, you should assess your eligibility for these loans and consider their pros and cons.

Please ask one of our brokers for a callback, and they can help you determine if a second charge mortgage suits your needs. You can apply for more borrowing on your existing mortgage instead.

Can you apply for a second charge mortgage with bad credit?

Getting a second charge mortgage with a bad credit rating is more challenging, but it’s still very much possible.

Secured loans are typically easier to obtain with poor credit since an asset serves as collateral. This allows the lender to recover the debt more easily if you are unable to repay it.

You may want to search for second charge mortgages for bad credit, which are loans offered to individuals with poor credit.

What happens if you can’t make the repayments?

A second charge mortgage is a loan that is backed by your property. Your home may be at risk of being repossessed if you do not stay current on your repayments.

When a house is repossessed, the proceeds from the sale will be distributed to the secured lenders based on the order of the loans. The first charge mortgage lender will receive payment before the second charge lender.

The second charge lender is lower in priority, making it less likely to receive payment if there is a shortfall. Second charge mortgages typically have higher costs than standard mortgages because they present more risk to lenders.

Can you apply for a second charge mortgage on an Interest-Only basis?

Yes you can apply for a second charge mortgage on an interest-only basis.

Applying for an interest-only second charge mortgage requires completing forms and supplying details about your financial situation.

You will need to provide information about your income, assets, debts, and other financial details so the lender can assess your eligibility for a loan.

After you finish the application, the lender will evaluate it and determine if they will approve the loan. Once approved, you’ll need to sign some paperwork and make monthly payments until the loan is fully paid.

The application process for an interest-only second charge mortgage is generally simple. Consider taking the time to research various lenders and submit your application.

Can you apply for a second charge mortgage if you’re self employed?

Yes you can apply for a second charge mortgage if you’re self employed.

If you have a minimum of 15% equity in your property, you can apply for a second charge mortgage.

If you are a contractor or self-employed, consider applying through a mortgage broker. A broker will present your income in a manner that is clear for underwriters. Most in-branch mortgage advisors do not handle limited company accounts.

If you’re self-employed and want to apply for a second charge mortgage, please request a callback from one of our brokers who will guide you through the process step by step.

Can you apply for a secured loan mortgage without an existing mortgage?

You can obtain a secured loan without needing a mortgage. A mortgage is a secured loan, but you can still use your property as collateral for another loan even if you don’t have a mortgage on it. Secured loans require a valuable asset as collateral to reduce the lender’s risk.

Who will offer second charge mortgages?

Specialised lenders such as Norton Finance, Pepper Money, and Paragon Bank provide second charge mortgages. Typically, they are only available through brokers.

If you’d like to apply for a second charge mortgage, please request a callback from one of our brokers. They will reach out to specialised lenders and guide you through the process.