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What Projects Will Second Charge Mortgage Lenders UK Accept?

Understand the types of projects and costs you can finance with a second charge mortgage – and why your plans might matter to your second charge lender!

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2023-05-09
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What Projects Will Second Charge Mortgage Lenders UK Accept?

Second charge mortgage lenders UK will accept applications for various reasons, but you may need to disclose the purpose of the borrowing, depending on the lender you select. Home improvements are one of the common reasons to apply for a second charge on mortgage borrowing, but you can also apply to second charge mortgage companies to finance other expenses or to consolidate debts.

Before you move ahead with a second charge mortgage UK, we recommend contacting Revolution Finance Brokers for independent guidance about the relevant lenders most likely to approve your application.

Reasons to Apply for a Second Charge Residential Mortgage

Alongside the reasons mentioned above, you can apply for a second charge mortgage UK for almost any purpose, provided you have sufficient equity in the property and pass the second charge mortgage regulation assessments conducted by your lender.

Further occasions when second charge mortgage companies may approve your loan include:

  • Applying for a second charge on mortgage borrowing to finance university or education costs.
  • Using a second charge mortgage UK to raise the deposit for a child to buy a home.
  • Funding an equity transfer or lease extension cost with a second charge residential mortgage.
  • Raising a deposit through a second charge mortgage UK to buy a rental property.

Due to second charge mortgage regulation rules, the lender will need to evaluate the property value, your credit score and equity ownership to decide whether they are prepared to lend the value you’d like to borrow through a second charge residential mortgage.

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Understanding a Second Charge on Mortgage Lending vs an Equity Loan

Equity loans may sound similar to a second charge mortgage UK, but there are differences. Equity loans can be set up as lifetime mortgages, for example, where the owner does not make repayments – instead, the lender sells the property when they pass away or move into care to repay the loan plus interest.

However, the basic principle of second charge residential mortgage borrowing is comparable and effectively means you can borrow mortgage lending against your property without needing to remortgage your existing product.

Remortgaging can incur high costs if you are within a fixed term and would need to pay early settlement fees. Other homeowners do not wish to remortgage because they would lose a beneficial interest rate by doing so.

Applying for a Second Charge Residential Mortgage to Improve a Property

Second charge mortgage companies are familiar with applications to raise financing against the property equity to cover the cost of improvements. You can use a second charge residential mortgage to pay for redecorations or refurbishments, to build an extension, fit a new bathroom or kitchen or cover any other outgoings associated with enhancing the appearance or functionality of your home.

Homeowners may also apply for a second charge mortgage UK product to cover the costs of more in-depth restorations, such as knowing down internal walls to create an open plan living space, building a conservatory or converting the attic.

Second charge mortgage lenders UK will permit the borrower to use the funds largely as they wish but may need to have some indication of what the funds are used for.

Using Second Charge Mortgage UK Borrowing to Consolidate Debts

Another common scenario is where a homeowner has plenty of equity in their property but has other debts with much higher interest rates than they would expect to pay on a second charge residential mortgage.

Most lenders are comfortable approving a second charge mortgage UK to consolidate debts. However, it is important to understand that even with a lower interest rate and longer term, you could potentially pay back more.

Homeowners also use second charge residential mortgage products to cover other costs, such as raising the deposit to buy another property that is not eligible for a mortgage in its current state or to buy a buy-to-let rental property.

The downside is that any second charge mortgage companies will secure the loan against the property, and you put the property at risk if you do not make repayments. While the second charge mortgage UK will be a second repayment priority to the first lender, it is still possible to lose your home if you do not keep up the agreed repayments.

Alternatives to Second Charge Mortgage Companies for Home Improvements

As an independent, whole-of-market broker, we act on behalf of our clients and can happily discuss alternatives to a second charge residential mortgage if you decide this isn’t the right product for you. Assuming you require a second charge on mortgage borrowing to cover the costs of improvement works, you may also wish to consider the following options.

Remortgaging vs Second Charge Mortgage UK

Refinancing your existing mortgage is an option if you can remortgage and it is financially viable to do so. There are two options – either remortgaging with the same lender or refinancing the loan through another mortgage provider.

The difference from a standard remortgage would be that instead of an additional product via a second charge residential mortgage, you increase the overall borrowing value when remortgaging.

Lenders will need to assess the property valuation and your existing equity ownership to decide whether to approve the application – and if you are in a fixed term and would incur early settlement fees, these should be included in your calculations.

Home Improvement Loans vs Second Charge Residential Mortgage

Another option could be to apply for a home improvement loan specifically designed for these projects. A personal loan will still have a fixed term and charge interest, but you can have either unsecured or secured borrowing, which differs from a second charge residential mortgage which is always secured.

Unsecured loans are often more expensive because the lender accepts a higher risk. Still, you can apply for a lower value, below the minimum borrowing normally available from second charge mortgage companies and repay the debt over a shorter period.

The right solutions very much depend on the amount you wish to borrow, your equity and property value, and your existing mortgage product.

For further advice, please contact the Revolution Finance Brokers team at your convenience.

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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