Your Guide: Second Charge Mortgages:

What Is A Second Charge Mortgage?

Also known as a secured loan or second mortgage, a second charge mortgage allows you to borrow money while you still have your existing mortgage - although it does require you to put the home up as collateral (security).

The loan secured on the property is provided by a different lender to your current mortgage provider, but this second lender will take second priority.

This means that if you ever decide to sell the property, the first lender will have access to the equity before the second lender. As with your first mortgage, failing to make repayments could mean the house is repossessed.

The maximum amount you’ll be able to borrow will depend on how much equity has built up in the property. The equity is the percentage of the home that you own outright, or the value of the home minus the mortgages owed.

If you want to find out what second charge mortgages are, get in touch with us today to see how we can help find the most appropriate deals for you.

How Do Second Charge Mortgages Work?

Homeowners are able to borrow more money via second charge mortgages, which can be a good alternative to remortgaging, particularly if you’ll be hit with penalties for moving away from your existing mortgage.

While these products are only available to homeowners, you don’t have to live in the property in order to apply. Some capital will need to have built up in order to be eligible for these mortgages.

The amount you’re able to borrow will depend on your income and how much equity you have in the property. The minimum you’re able to borrow is typically £1,000.

Note, as well, that interest rates on second charge mortgages are typically higher, so you may find you have to pay more interest on your second mortgage than with your first.

The reason for this is that, if your home is repossessed, the first charge lender will be paid before the second, which means they could lose out if the money from the sale is insufficient to cover both loans.

FAQs

Can You Get A Second Charge Mortgage On Buy-To-Lets?

Note, however, that overall rental yields and the loan to value ratio on your properties can have an impact on whether you’re successful or not. Talking to a specialist mortgage broker can help you find the most appropriate deals for you.

You may also find it harder to access secured loans on buy to let properties if your property is a regulated buy to let, which are typically rented out to immediate family members. It may be necessary to provide evidence of residency.

Can You Get A Second Charge Mortgage With Bad Credit?

Yes, it is possible to get a second charge mortgage with bad credit, although you may find it beneficial to talk to a specialist mortgage broker, who will be able to help you find the most appropriate deals for your specific circumstances.

There are lenders out there who offer bad credit second charge mortgages, which are specifically meant for those with a poor credit history. It’s important, to note, that interest rates may be higher on these products. You will also need to take an affordability test and have sufficient equity in the property in order to be eligible.

How Much Can You Borrow On A Second Charge Mortgage?

If you’re wondering if you’re able to release equity on a buy to let or residential mortgage, you’ll find that your personal circumstances dictate how much you’re able to borrow, so it’s important to work out how much you need to take out in order to assess your affordability.

Lenders will also likely want to see that you’re able to afford the second charge mortgage, as well as your current mortgage. Your income will be assessed against your expenditure in order to see if you’re able to make repayments on the loan amount.

As an example, if your property is worth £250,000 and your first charge mortgage still has £150,000 left on it, then £100,000 is likely to be the maximum amount you’re able to borrow.