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The Comprehensive Guide to Applying for a Second Charge Mortgage

Learn about applying for a second charge mortgage, what lenders will look for and how to improve your chances of approval.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2024-07-17
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The Comprehensive Guide to Applying for a Second Charge Mortgage

Second charge mortgage lending can be a viable option when you need to release some of the equity you own in your property but cannot remortgage your first charge mortgage. A second charge mortgage example could include a homeowner with a fixed-term mortgage who would pay significant early settlement charges to remortgage.

There are varied reasons to choose a second charge mortgage. Still, it is important to note that interest rates are normally a little higher than for first charge mortgages, primarily because second charge mortgage lending is perceived as higher risk by the lender – they have second security, whereas the original lender has first.

Revolution Finance Brokers covers the second charge mortgage meaning and shares insights into how second charge mortgage lending and all the pros and cons you should know.

Second Charge Mortgage Meaning Explained

The basis of a second charge mortgage is simple; you already have a mortgage secured against your property but need to borrow more. Provided you have sufficient equity, and assuming a remortgage is not an option, you can take out a separate mortgage, with a second charge on your home – hence, a second charge mortgage.

So, why might you consider a second charge mortgage if the interest rates are higher?

Common reasons include releasing equity without remortgaging a fixed-term mortgage before the end date and attracting an early repayment settlement, which can be a penalty calculated as a percentage of the total borrowing.

Second charge mortgage lenders will consider applications for a range of purposes, including making home improvements such as adding an extension, consolidating other debts, or financing other expenditures such as a new car, holiday or wedding.

Home improvement second charge mortgage lending is often easier to secure since the lender has the assurance that, following the upgrades, the property will very likely be worth more than its current valuation. This reduces the second charge mortgage risk.

Because second charge mortgage lending is not repaid to the lender as a first priority if the property is ever repossessed, they will not lend up to 100% of the equity value to protect the likelihood of recouping the full value of the outstanding second charge mortgage debt.

Therefore, the greater the equity you own, the more you can borrow, and the lower the risk the second charge mortgage lender will assign the application, in turn often reducing your quoted interest charges.

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Pros and Cons of Second Charge Mortgage Lending

The primary advantage of a second charge mortgage is that you can access your equity without needing to remortgage, potentially sacrificing a competitive interest rate. Instead, the second charge mortgage is a separate, standalone loan.

However, there are downsides to consider before you proceed with a second charge mortgage application:

  • Your home is at risk if you don’t keep up with your second charge mortgage payments, just as it would be if you couldn't repay your original mortgage. Lenders use the property as security and, in the worst-case scenarios, can repossess it if you have defaulted on your second charge mortgage.
  • Interest rates on a second charge mortgage are higher because of the risk profile linked to this type of lending, as we've explained above.
  • Mortgage lenders will apply strict criteria and will not offer a second charge mortgage if they have any reason to believe you will not be able to manage the repayment costs of two mortgages.

Our experienced second charge mortgage team can talk through all of these factors in more detail if you need guidance about whether or not to apply for a second charge mortgage or if you are comparing second charge mortgage lending against another product.

Applying for a Second Charge Mortgage

The good news is that the application process for a second charge mortgage is much like applying for your original home loan. You could possibly apply to banks, financial providers and specialist lenders. However, the best rates and most flexible second charge mortgage criteria are normally available from niche lenders rather than mainstream banks.

You can apply for a second charge mortgage either with the same lender as your first charge mortgage or apply to an entirely different provider – this may be beneficial if the first lender’s policies mean they are less likely to offer you a second charge mortgage.

It is essential you consult a second charge mortgage broker to compare all the various second charge mortgage lending products because there are numerous deals, repayment terms, charging structures and interest rates.

While some second charge mortgage providers will accept online applications, many specialists deal only with approved brokers within their network. In this scenario, we can submit your second charge mortgage application on your behalf and negotiate with the lender to secure the best possible offer.

Alongside the usual documents, ID and income history, a second charge mortgage lender will need to review the property valuation and assess the first mortgage to ensure you have adequate equity in the property to balance against the amount you wish to borrow in your second charge mortgage.

Applying for a Second Charge Mortgage to buy a Second Home

One of the potential reasons to choose a second charge mortgage is to leverage your equity to raise a deposit or even the full balance required to buy another home. Normally, a second charge mortgage would not be necessary, but this can be a solution where the new property is unmortgageable.

For example, a landlord might wish to invest in a renovation project to buy a property that does not have a working bathroom and is therefore ineligible for standard mortgage lending. In this second charge mortgage brokers example, they could take out a second charge mortgage on an existing property or their home and use the funds to purchase the additional home.

It is also common for homeowners to apply for a second charge mortgage to finance a holiday home.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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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.

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