Second Charge Mortgage

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First Time Buyers

Second Charge Mortgage

All about additional borrowing and second charge mortgages with Peter Matthews.

What is additional borrowing and what types are there?

Additional borrowing is where a client has an existing mortgage and potentially wants to do home improvements to the house to enhance its value, to improve with energy efficiency for example. 

People may want to replace their windows, add cavity wall insulation, put a conservatory on the back of the house… anything that enhances your property can be done with additional borrowing. 

The first port of call for additional borrowing should always be the existing first chargeholder – your current lender. They may allow a further advance on the existing mortgage. Some lenders don’t offer these further borrowings because they’re a securitised lender and they’ve sold that loan onto an institution, or their in-house processes don’t allow it. 

In that case we would look at second charge lenders. These will lend a sum of money and put a ‘charge’ on the property that sits behind the main mortgage or the first charge. It could even be a third charge if you’ve already got a second charge. They all sit in line behind each other. 

Second charge basically means that if the house is sold, the money goes to the first charge holder first and then to the next in line thereafter. Typically a second charge is used where the first lender can’t or won’t lend the money, or when the client’s on a fixed rate or a variable rate mortgage and redemption penalties would apply if they remortgaged to a new lender. 

You borrow the second charge for a period to do the works that you want to do. As soon as the redemption period on the first charge ends, you can remortgage to another lender and hopefully get a better interest rate overall. 

Who is a second charge loan for?

Second charges are for people who have a first mortgage. You don’t look at a second charge for a First Time Buyer. They were around years ago, and called top-up loans, but not today. Although I suppose Help to Buy could have been regarded as a second charge loan. 

Typically, though, they are for an existing mortgage holder who wants to facilitate improvements to the property or consolidate existing unsecured debt. They might be paying high charges on credit cards or other unsecured loans, where it makes financial sense to move that unsecured borrowing to the mortgage, to get a lower interest rate and hopefully pay that money off. 

People who typically just pay the minimum payment on the credit card are paying thousands in interest over the years. In some circumstances, it may be beneficial to put that debt on a secured basis with a fixed term to pay it off at a lower interest rate.

Speak To an Expert

Our job is to provide you with the expertise and knowledge to find you the most appropriate solution. Whether you’re investing in property or looking to buy your first home, our mortgage advisers can help.

Do you need consent for a second charge?

Yes. Most first charge lenders will have in their mortgage terms and conditions that you must seek their permission to allow a second charge.

How much can you borrow with a second charge?

It’s limited by Loan to Value. With some lenders you can borrow up to 85% or 90% of the value of the property, subject to proving affordability. As with a first charge mortgage, it is down to being able to afford those payments.

How long does it take to put a second charge on a property?

The timescales are similar to a first charge mortgage, although there is slightly less legal work. There is still underwriting valuation and the potential for legals. Typically, I would say it takes four to six weeks.

What are the advantages and disadvantages of a second charge loan?

We’ll start with the disadvantages. The interest rate is probably going to be higher than a first charge mortgage and there are redemption penalties with most of them. 

But the advantages are that you can avoid paying excessive redemption penalties on your first charge mortgage. A second charge can let you take advantage of preferential deals from manufacturers or suppliers of home improvement products. 

As with anything in the mortgage market, there are products designed for certain circumstances and speaking to a professional mortgage advisor will help you know which is right for you. In some circumstances a second charge is exactly the right thing for a client to do.

How do I apply for a second charge loan?

All you need to do is contact us either via the website or by the phone and we will do everything for you. We’re always available should people have any more questions.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

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