Second Charge Loans

A Second Charge Loan is a loan secured on a residential property or buy to let which has in place a first charge mortgage secured against it, hence term Second Charge.

What you need to know

  • In order to obtain a Second Charge Loan a First Charge Mortgage needs to be secured on the property
  • Second Charge Loans need the consent of the first charge lender before they can complete.
  • Upon sale of the property the first charge mortgage takes priority in being repaid and then the second charge in order of priority.
  • It is possible to re mortgage a property with a second charge loan secured against it but the new proposed first lender will have to have the second charge lenders agreement to defer to second charge in this instance.
  • If you have a current mortgage that has a preferential rate in some cases pre credit crunch or you are tied in on a deal with redemption penalties and you need to raise funds a second charge could be of benefit

Speak to someone today

If you would like to speak to someone directly today,
please give Jonathan a call.

Available Monday - Friday 9am to 6pm

Our Transparent Process


Obtain your Permission

Securing a Second Charge Loan is a process that requires guidance because you are taking a line of credit against your existing asset by part re finance using your property equity as security so it is a big decision to make.

As a result of your enquiry we will telephone you to assess what you are looking to achieve.

Agreement / Paperwork

Upon your agreement we will discuss your case with the best suited company concerned, give you initial feedback regarding the figures concerned and with your agreement submit the enquiry to the company concerned.

Application

The company that we have recommended to you will then deal directly with you start to finish and initially telephone you to confirm what we have discussed and then go through their process and timeframe with you. We will oversee all and ensure a smooth process start to finish. There are no hidden fees or charges, it is all very clear and transparent.

Ongoing Review

Once your business need is completed and set up then unless you require any of our other services we carry out 6 monthly reviews to keep in touch but you know where we are.

Be advised that we do not cold call, we do not mail shot, we do not pester people, we do not force people to make decisions they do not want to. Everyone who we see is as a result on an enquiry led by them, meaning that the potential client has made the decision to look at and in most cases transfer their Final Salary Scheme or Personal Pension, or SIPP into a new arrangement be this a new Personal Pension or Annuity or Flexi Access Drawdown arrangement. Whilst we are not order takers, the point of this declaration is that we do not force or push people into making such decisions. We still go through a lengthy advice process to check viability, attitude to risk, product and fund selection and point out all of the pitfalls and benefits either way. In some cases we do not agree and this is pointed out to clients. We do not transact insistent client business.

Contact us to discuss your finances

We specialise in all aspects of personal finance and will personally call you back to discuss your requirements and help you make the best choices for your individual circumstances.

No hidden fees. No pressure sales. Let's secure your future together.

Covid-19 Update - We can now offer remote meetings and electronic signatures. Please choose this option in the form. We can still offer in person meetings if required.

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What is a second charge loan – Commercial or Residential

The reason it is a second charge is because the mortgage on the property is known as the first charge and a secured loan by another lender follows the mortgage and is therefore known as a second charge. In the event the property is sold from the proceeds of the sale the mortgage, 1st charge is repaid first and then the secured loan, second charge is repaid. The balance of equity is then available to the vendor as usual.

A second charge mortgage now requires all lenders to apply similarly robust lending criteria to these loans as they do to initial or first mortgages.

Despite the secured loans being called second charge mortgages, borrowers do not use the money borrowed to fund the purchase of a property. Instead, second charge mortgages can be taken out to fund things like extensions and home improvements or consolidate debt. It is also possible to raise a second charge loan for Commercial purposes

Some reasons you should use us

  • Access to our initial advice and finding a suited lender for your requirements
  • Only the best brokers and product providers used to handle your application
  • No hidden extra costs, all fees and charges fully disclosed at the outset
  • Flexibility of product and tailored to your needs
  • Extensive Industry Experience
  • We are totally Independent, Directly Authorised Advisers.
  • We are friendly and talk plain English and no waffle.
  • No pressure selling from us. 

How does a second charge mortgage work?

Second charge mortgages are secured homeowner loans offered to borrowers who have equity in a property, which they can put forward as security for the loan. Lenders can offer larger loan amounts and longer loan terms for this type of borrowing. However, you must remember that your home is a risk if you cannot keep up with repayments.

Since 2014, lenders have been required to impose the same affordability checks on borrowers of second mortgages as those taking out initial or first mortgages, in order to prevent people borrowing more than they can afford to pay back. As a result, your credit record and your income will be taken into account by lenders when considering your application for a second charge mortgage.

For second charge mortgages or loans secured against a borrower’s property lenders must now apply similarly robust lending criteria to these loans as they do to initial or first mortgages.

With second charge mortgages, borrowers do not use the money borrowed to fund the purchase of a property. Instead, second charge mortgages can be taken out to fund things like extensions and home improvements or consolidate debt.

What is equity?

The equity you hold in your property is simply the value of your home, minus the mortgage repayment total you still owe on it. So if your home is worth £250,000 and you have a £150,000 mortgage still to repay, you have £100,000 of equity in your home.

How do I work out how much I could borrow?

Second charge mortgages are secured homeowner loans offered to borrowers who have equity in a property, which they can put forward as security for the loan. Lenders can offer larger loan amounts and longer loan terms for this type of borrowing. However, you must remember that your home is a risk if you cannot keep up with repayments.

The amount you will be offered by a lender for a second mortgage will be based on a maximum loan to value they are willing to lend on less the current mortgage balance and the difference would be the maximum amount available.

So if your home is worth £250,000 and you have a £150,000 mortgage still to repay, you have £100,000 of equity in your home.

If the maximum loan to value for a second charge was 85% of the property value then £250,000 at 85% is £212,500 less the current mortgage balance of £150,000 is £62,500.

Therefore in this example the maximum second charge loan would be £62,500.

This would be subject to the property valuation and since 2014, lenders have been required to impose the same affordability checks on borrowers of second mortgages as those taking out initial or first mortgages, in order to prevent people borrowing more than they can pay back. As a result, your credit record and your income will be taken into account by lenders when considering your application for a second charge mortgage.

Why would you take out a second charge mortgage rather than remortgaging?

If your credit rating has been damaged since you took out your first mortgage, for example, you may find that you struggle to secure a good mortgage deal when remortgaging. Taking out a second-charge mortgage can sometimes be an alternative option.

You may be tied into a fixed rate with your main mortgage and have redemption penalties to stop you from re mortgaging and therefore the best suited product could be a second charge loan.

You could apply to your current lender for a further advance which you may or may not be able to get with them. In most cases they would tie it into your current loan term and that may cost more.

You have a historic Interest Only Mortgage which was in place pre mortgage crash recession and to apply for a further advance the lender may insist on a change of repayment policy for you.

You are a mortgage prisoner, meaning that maybe you self certified your income when you applied for the mortgage and your situation has changed and you are no longer in lenders criteria for borrowing and in some cases can't even change the current deal. A second charge may suit.

However, in many cases, a remortgage deal will be cheaper and easier to arrange than a second charge mortgage, make sure you consider and compare these costs.

What do I need to consider before taking out a second charge mortgage?

  • The interest rate charged (APRC)
  • Whether you can fix the interest rate
  • How much you can borrow
  • How long you have to repay the money
  • The minimum and maximum repayment terms
  • The cost of setting the loan up
  • Any early repayment charges
  • Whether you can afford repayments, even if the base rate increases [variable interest]
  • Whether you will be able to service the debt for its entire term

What happens if I move house?

When you sell your home, the first mortgage you have taken out is cleared as a priority over the second charge mortgage, but the lender may pursue you for the repayment. You will need to clear the second mortgage when you sell your house and, as a result, it is important to check whether you will be liable for any early repayment charges.