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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.
Yes, home improvements are the most common reason homeowners apply for second charge mortgage UK financing. The risk to the lender is reduced since the property valuation used during the assessment process will very likely appreciate once the improvement work concludes.
Second charge mortgage companies will usually be able to offer lending to consolidate other debts, paying back short-term borrowings such as credit cards, bills and personal loans with a lower interest rate than most unsecured debt. Homeowners must be aware that second charge residential mortgage borrowing is secured against their property, and failure to keep up with repayments could put their home at risk.
Many people use second charge mortgage UK lending to raise a deposit, or even the full amount, required to purchase another property, which could be a holiday home or a buy-to-let. This solution can work well if you cannot get a buy-to-let mortgage for another reason, such as having all your funds tied up in your primary home or buying a non-mortgageable rental property for renovation.
Although a second charge residential mortgage is primarily an individual loan, there may be the potential to use financing to invest in your business or to help a self-employed or sole trader business get off the ground. The challenge could be that even if second charge residential mortgage companies are able to approve the loan, the business will not be a party to the borrowing, and your home remains at risk.
Second charge mortgage companies approve loans to allow the borrower to purchase a vehicle, pay for children’s education expenses or even buy a holiday home – this type of funding is easy to calculate, and if you are asked by second charge mortgage UK providers for the purpose of the loan they won’t have an issue with a car purchase.
A boiler replacement would be treated the same way as home improvements, and a second charge mortgage UK provider would normally be happy to finance this work. The other eligibility criteria still apply in terms of equity and affordability, but you would be unlikely to experience a rejection based on the reason for the borrowing.
Most second charge residential mortgage lenders will accept applications where you wish to release equity to cover significant tax obligations. Some high street banks will not approve personal loan financing for this purpose, so a second charge mortgage UK may be the best alternative to avoid damaging your financial position.
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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.