Second Charge Mortgages Made Simple
Straightforward mortgage advice from expert brokers. Finding the perfect mortgage just for you without the jargon.
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Straightforward mortgage advice from expert brokers. Finding the perfect mortgage just for you without the jargon.
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Second Charge Mortgages Made Simple
What is a second charge?
Most of us have a mortgage on the property we live in. This tends to be with a well known bank or building society and is most likely the only money you owe on your house. This mortgage is secured on your property and so it is listed on the deeds that you owe that mortgage lender. This loan is what we call a “first charge”. Every mortgage lender that does standard mortgages will always have that first charge on your property. This means that when the property is sold this money gets paid off first, before any one else and before you get your equity.
A second charge comes in when you borrow more money on another mortgage on top of what you already owe. If this extra money is from a different lender it will be secured on your property but as a “second charge”. This means when the property is sold the new lender will get their money back after the original lender.
What is a second charge mortgage for?
Second charge lenders can be a little more flexible when it comes to the purpose of the loan, so it would be fair to say there would be a lender for any legal purpose really. This could be things like home improvements or maybe an extension. Right through to debt consolidation or even business purposes with some lenders.
Taking a second charge will give you a lump sum of extra funds all in one go to spend on whatever you need. If you need some extra funds for something but you are tied in to your current mortgage rate, a second charge will be a good option for you t get the extra money you need quickly without a penalty from your mortgage lender
Are second charge mortgages more expensive?
Due to the nature of the “second” part of this the answer is yes. It is all about risk for the lenders so because they get their money back after the main mortgage lender, the risk of there not being enough equity to cover what you owe is greater. And with greater risk comes a greater interest rate! The same principle applies to a regular mortgage where your deposit is lower and so your equity is lower. You should expect to pay a higher rate than you have on your main mortgage but exactly how much will depend on the current climate and how much equity will still be left.
How do you pay off a second charge mortgage?
A second charge is typically going to be a repayment loan so it will naturally be repaid at the end of the term just like any other repayment loan. However, because it will typically be a higher interest rate than a standard mortgage we will generally plan to repay it earlier by re-mortgaging and combining it with your main mortgage. This can usually be done any time so it makes sense to do it as your existing rate ends.
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Which lenders do second charge mortgages?
You won’t find your typical “high Street” banks offering a second charge, it is a little bit more specialist. That doesn’t mean back street though! There are some large firms offering second charges that specialise in this kind of lending and those are the kind of lenders you will expect to use. Whilst you may not immediately recognise the name of the lender, rest assured the companies we use do this all the time for many customers.
How much can you borrow on a second charge?
Your affordability will be assessed for a second charge just like a standard mortgage. However, you will find that a lot of loan providers are a little more flexible and a little more generous when it comes to how much they will lend or what income they will use. You may well find if you are self employed there is more choice just using one years accounts for example, or a higher multiple of your income used if you are employed. So a second charge can sometimes be an option if you are not quite able to borrow what you need on your mortgage but need to borrow extra.
Re-mortgage or second charge?
This is often a consideration when it comes to needing extra funds. If your current main mortgage is due to end soon and you can wait until it does before you need any extra money and you are able to borrow enough then a second charge is absolutely not going to be the one for you! But, if you are tied in to your current mortgage for some time and you need some extra funds soon or you are not able to borrow quite enough yet then it could well be the right choice for you. The idea generally when we do this is that when your mortgage rate does end, we can swap lenders and borrow enough to combine both the existing mortgage and the second charge.
Why use a mortgage broker?
Finding the right second charge lender yourself online can be a bit of a minefield. There is a lot of choice, but they all have different criteria and lending policies. Some lenders also do not lend to consumers directly so using a broker will give you access to some lenders that you will not be able to reach yourself, as well as having someone who knows which provider and which option will be the best for your situation.
Second charge mortgages are referred to a third party. Neither Vantage Mortgages Ltd or PRIMIS are responsible for the service received
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