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Second Charge Mortgages

Second charge mortgages are available to homeowners who already have a mortgage against their property, but have equity available. A second mortgage is, therefore, lending against the equity and is known as a second charge mortgage.

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Finding a second charge mortgage

The term ‘charge’ means the security held by the lender in your property, which means they have the right to repossess the premises should you not be able to keep up with the agreed repayments.

Uses of a second charge mortgage

Second charge mortgages are often used as a cost-effective way of accessing lending, at better interest rates than those available through other loans. The maximum value of a second charge mortgage depends on the amount of equity available in your property, and the affordability assessment a lender will conduct.

Examples of reasons homeowners may wish to consider a second charge mortgage include:

  1. Renovations or improvements to the property
  2. Covering large expenditure such as weddings, purchasing a vehicle or making an investment
  3. Paying for expenses such as university fees
  4. Consolidating other loans into one repayment
  5. Investing in a buy to let property

Second charge mortgages vs. remortgaging

A second charge mortgage is an alternative to remortgaging. If your existing mortgage is at fixed interest rates that are lower than the current rates on offer, or if you have reason to suspect a remortgage application might be rejected, it may be more cost-effective to opt for a second charge mortgage. Another reason homeowners apply for second charge mortgages is that they are tied into their existing mortgage deal, and are unable to remortgage to raise finances through a new lender.

Disadvantages of second charge mortgages

The main risk to consider is the charge held against your property, and the potential repossession of your home should you not keep up to date with your mortgage payments. As with any mortgage, it is important to understand all the fees and repayments involved and make sure that you can afford the repayments. If you are considering a second charge mortgage to consolidate other debt, it is essential to compare the cost of borrowing between your options before taking out a second mortgage against your home. Interest rates on mortgage lending are typically lower than for shorter-term unsecured loans, however the term is likely to be much longer and may not be more cost-effective overall.

Interest rates for second charge mortgages

The amount of interest you would expect to pay on a second charge mortgage depends on many factors. This includes the value of your property, the amount of equity available, your credit rating, and how the lender assesses your affordability. If you are thinking about a second charge mortgage, need to consider the different financing options available, or unsure about your eligibility to apply, give us a call today. Revolution Finance Brokers are experts in mortgages across all specialisms and niches and can provide bespoke advice about what your options are, and which lenders can offer the best rates for your circumstances.

FAQs

What does a second charge mortgage mean?

A second charge mortgage is a second mortgage, secured against your home alongside your existing mortgage. It is a way of raising cash for homeowners who have a mortgage, but have enough equity in their home to take out more lending against it.

What can second charge mortgages be used for?

Second charge mortgages can be used for any purpose, although some lenders may only consider applications for a specific number of reasons. Second charge mortgages can be used to consolidate other debts, pay for renovations or home improvements, or raise cash for expenses such as a wedding, university fees or buying a new car.

When are second charge mortgages a good option?

Depending on what you are considering a second charge mortgage for, it can be a cheaper method of financing. For example, you may be offered lower interest rates than for shorter-term lending or vehicle purchase finance.

Why do people choose a second mortgage instead of just remortgaging?

There are a number of scenarios when a second charge mortgage is preferable to remortgaging. It might be that your existing mortgage is on a very competitive rate which is no longer available. If you remortgaged you would lose your low interest rate and it would end up costing more. Your existing mortgage might be restricted, and your lender not able to consider a remortgage application or would charge penalty fees for making any changes to your mortgage at this stage.

Are second charge mortgages risky?

A second charge mortgage carries the same level of risk as any mortgage. The lending is secured against your property, so if you fail to keep up with repayments your home is at risk of being repossessed.

What are the interest rates for second charge mortgages?

Rates vary between lenders. There will be many variables that determine what rates you are offered, including the equity in your home, the value of your existing mortgage and how much you wish to borrow. The reason for your second charge mortgage may also have an impact on the application process, as well as your credit rating.

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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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