Second charge mortgages

21 Jan 2020

Second charge mortgages

Second charge mortgages:

are loans which are secured against your property, as the name suggests this loan is second to the first charge, which would be likely for a larger amount of borrowing, probably taken out when you purchased the property at the onset.

Historically, when borrowers where turned down for financial support they may have been attracted to the higher risk, higher interest providers for their borrowing needs! Second charge mortgage rates are higher than the traditional rates but a lot lower then some of the ‘back street’ lenders out there.

In recent years second charge mortgages have come under scrutiny and, are now regulated by the standards set by the Financial Conduct Authority through the Mortgage Credit Directive. As a consequence, second charge mortgages have become a ‘low cost’ option for home owners who need funding.

As the BTL lending rules evolve we see lenders upping their stress test calculations. Historically the norm of 125% at 5% was the standard however, we see lenders using 140-145% at 5.5% especially for higher tax payers.

Remortgage or Second Charge – The Highlights

Reasons for lending?

Remortgages have a stringent approach on what they will lend for.

Second charge mortgages criteria will consider any legal purpose.

Loan to income?

Remortgages will normally only lend 4-5 times your income

Second charge mortgages will consider lending higher multiple of your income subject to affordability calculations and stress tests

Adverse credit?

Remortgages will scrutinise the whole of your credit history.

Second charge mortgages will review credit history however every case is reviewed on its own accolades, in certain cases they may not even look at your credit file.

Effect on your existing interest only mortgage?

Remortgages are often against interest only products.

Second charge mortgages will raise funds, running simultaneously with your existing first charge mortgage unaffected.

ERC’s?

Remortgages will incur penalties for exiting, these can range from 1 - 3%.

Second charge mortgages are taken out without effecting your original mortgage, therefore no ERC’s to look forward to!

A quick guide to second charge mortgages:

  1. no legal fees
  2. rates start from around 3.73%
  3. interest only available
  4. loan repayable up to the age of 85
  5. loans can range from £10,000 up to £2.5m
  6. second charge term may exceed first mortgage term
  7. discounted, variable, fixed & base tracker rates available
  8. reasons for lending that are entertained:
paying a tax bill
paying mortgage arrears
home improvements
business needs; new / existing
paying a partner
  1. 12 months self-employed accepted
  2. employment probation periods accepted
  3. ERC’s from 0 – 3%, product dependent
  4. up to 30 year terms available

Give us a call on 0330 304 3040 and one of our experts will assess your circumstances.

Here at Revolution Finance Brokers, we are independent brokers in Essex, Kent, London and Hertfordshire, our affiliation is with no one lender, our advice is based on your needs. Before we speak to any lenders will we fully understand your situation and based upon that we will secure the best possible products, at the best possible rates.

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Author

Almas Uddin

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.