What is a second charge mortgage?
A second charge mortgage, also known as a "secured loan" or "second mortgage," lets you borrow money using a property that already has an existing mortgage. The first mortgage on the property is called the "first charge." The second mortgage is different from the first one because it comes from a new lender, with potentially different interest rates, repayment periods, and overall mortgage terms.
Before getting a second charge mortgage, you need permission from your current mortgage lender.
The interest rates for a second charge mortgage are likely to be higher than those for your first mortgage because the second lender takes on more risk. If you struggle to make mortgage payments and your property is taken back, the first charge lender gets paid first. If there isn't enough money from selling the property to pay both lenders, the second mortgage lender could lose money.
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How much can I borrow with a second-charge mortgage?
The amount you can borrow on a second mortgage will depend on your income, as well as the amount of equity (or capital) you have in your property. If, for example, you have a high income and capital of £100,000, a second mortgage lender might agree to let you borrow the full £100,000. However, some will cap the maximum amount at 75% or 80% of the equity available.
The minimum amount you can borrow is usually £1,000.
What are the alternatives to a second-charge mortgage?
The main alternatives to taking out a second mortgage on your home or property are:
- Remortgaging for a larger amount
- Dipping into your savings
- Applying for a personal loan
How long does a second-charge mortgage take?
Taking out a second-charge mortgage on your house or flat is usually a lot quicker than securing a first mortgage. In fact, some lenders even claim they can clear your funds in a matter of days. In most cases, you should have the money within three to four weeks.
When comparing second-charge mortgage deals, remember to always look at the total cost, including any fees. You should also check for early repayment charges.
Can I take out a second-charge mortgage to fund my business?
It depends entirely on the lender. Some mortgage providers are willing to lend you funds as long as you have a solid, realistic business plan in place. Others, however, do not offer this option.
It is worth remembering that second-charge mortgage lenders prefer to give out additional borrowing to people who are looking to carry out renovations. This is because home improvements are likely to increase the value of your property, meaning the lender is less likely to lose out if they have to seize your house.
Do I need to inform my current lender if I take out a second-charge mortgage?
Not necessarily. In fact, the second-mortgage charge is unlikely to jeopardise or affect your existing lender.
Bear in mind, though, that if you’re unable to meet your repayments, they will have the first charge on your property. This means that, if they need to repossess your house and then sell it, they’ll get first dibs on the proceeds
ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE