Second charge mortgages

If you’re paying a mortgage on a home you own but find yourself in need of another loan, you might be able to borrow more money through a second mortgage. This is called a second charge mortgage.

What is a second charge mortgage?

A second charge mortgage is taken out in addition to your first mortgage, but it is entirely separate from it. It uses the equity in your property as security and is based on the value of your property minus what you still owe on the first mortgage. Second charge mortgages are often used as an alternative to remortgaging or taking out a personal loan, but if you don’t keep up the repayments, you put your home at risk. So it’s wise to consider all of the options you have if you’re in need of more money or a quick lump sum of cash.

How do you apply for a second-charge mortgage?

Many UK banks and building societies offer second charge mortgages. You will need to demonstrate how much equity you have in your property in order to apply. You will also need to prove that you can afford the repayments on both mortgages. If you’re looking to take out a second-charge mortgage on your property, you may need to have your existing mortgage lender approve any application for a second-charge mortgage.

The amount you can borrow for your second charge mortgage will depend on the Loan to Value ratio. The ways in which lenders define the Loan to Value criteria depend on different factors like your credit score, affordability, first mortgage amount, debts, outgoings and employment status.

Pros and cons of a second charge mortgage

If you’re considering a second charge mortgage over other options, it’s important to be aware of the pros and cons so that you can make an informed decision.

Pros:

• By taking out a second mortgage, you won’t lose the good deal you have on your first mortgage. Result! - You don’t have to pay any early repayment charges on your first mortgage. - You can keep the same term on your first mortgage. - You could pay off your second mortgage early to avoid paying high interest if you choose a second mortgage that allows unlimited overpayments.

Cons

• Some first mortgage lenders will need to give permission to the second mortgage lender in order for the second mortgage to be approved. - The second mortgage often comes in at a higher interest rate. - You could lose your home if you don’t keep up with the repayments. - If you want to move house and you need to pay off the two mortgages in full, this can leave you with very little to put down as a deposit. - Although the monthly payments are more affordable, it could mean you are paying more overall.

What can I use a second charge mortgage for?

A second charge mortgage is a great way to consolidate debt from credit cards or personal loans. It’s also useful if you need a lump sum of cash to carry out things like home improvements or renovations and don’t want to wait until you’ve saved up enough money.

What are the alternatives to a second charge mortgage?

A second charge mortgage is a good way to access or borrow more money, but it’s not the only way. If you don’t like the sound of the disadvantages that come with it, consider some of the other options, such as: - Remortgaging - Saving up or dipping into your existing savings - Taking out a personal loan

What to consider before taking out a second charge mortgage

You’ve considered all the alternatives to a second charge mortgage and you’ve studied the pros and cons of a second charge mortgage, but there are still a couple of things you need to think about. Before taking out another mortgage, look at the potential fees and charges.

Then think about what might happen if you were to lose your job. How would you meet the two mortgage repayments each month? It’s important to consider the potential situations that could occur so that you aren’t greeted with any nasty surprises.

 When applying for a second mortgage, you will have to undergo the same affordability and financial checks as you did for your first mortgage. This would be a good time to look at your finances, check for unnecessary subscriptions, ensure payments are up to date and check your credit score – all the things you did the first time around.

Unfortunately, just because you did it before doesn’t mean you won’t have to do it again. If you’re looking to raise funds relatively quickly and remortgaging or taking out a personal loan is off the cards for you, a second-charge mortgage might be what you need.

Just make sure you have considered the process of applying and all the risks that come with taking out a second charge mortgage. If you’re still not sure, speak to one of our mortgage experts. They can assess your situation and advise on whether a second mortgage is the right option for you.

FAQs about second charge mortgages