Will My Mortgage Lender Let Me Take Out A Homeowner Loan?
Will My Mortgage Lender Let Me Take Out A Homeowner Loan?
Find out how your mortgage lender impacts your home loan and how consent to a second charge works
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Author: Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in homeowner loans
When taking out a homeowner loan, in most cases your existing mortgage lender must consent to you placing a second charge on the property.
While this isn’t usually a problem, we will dive into things in more detail and explain exactly how this works.
What is a homeowner loan?
A homeowner loan is a type of loan that allows you to release funds from your property or an investment property (known as buy to let homeowner loans). Homeowner loans are taken out on a second charge basis, sitting behind your current mortgage lender (the first charge).
Almost any property can be used to raise funds using this type of loan, as long as it has sufficient equity to meet the lenders requirements.
These loans are known by several names in England, including secured loans, home equity loans and second charge mortgages.
Read more – homeowner loans for home improvements or debt consolidation homeowner loans.
What is a legal charge?
A legal charge, also known as a charge allows a lender to secure the money they have lent against your property. It is a legal document signed by the borrower. Once signed, it is registered against the property at the Land Registry to alert any potential buyer of the existence of the debt.
Homeowner loans are secured against your property on Land Registry, as opposed to unsecured loans, which require no collateral.
Most people associate a charge with mortgages – as when you take out a mortgage, the lender places a charge on the property you’re buying.
Read more – fixed rate homeowner loans or homeowner loan rates.
Why would my mortgage lender care if I take out a homeowner loan?
Your mortgage lender is impacted when you take out a second legal charge on your property as your new lender will have certain rights over the property.
While your existing mortgage lender will retain the first charge and therefore priority of repayment, that doesn’t mean they have total control.
Should you fall into default on your new homeowner loan (either through breaching your loan conditions or by failing to keep up your repayments), your second charge lender may eventually seek possession.
If your mortgage is still being paid, this may not be welcomed by your mortgage lender.
Ultimately, the decision to grant consent to a second charge is all about the loss of control caused by allowing another lender to take a charge on your property.
Additionally, your existing mortgage lender will have assessed your loan based on affordability and their confidence in your ability to make the payments.
If you take out extra borrowing via a homeowner loan, you will have an additional monthly payment not taken into consideration by your existing lender at the time.
Your lender may be happy to work with some lenders, but not others. This can cause issues with some bad credit homeowner loans.
Will my mortgage lender consent to a second charge?
In most cases, mortgage lenders are willing to grant consent to a second charge as long as your account is well maintained.
While some lenders are more reluctant, most approve almost every request on well-maintained accounts.
If your mortgage is currently in arrears, your lender is likely to have serious concerns and is likely to reject your request for consent to a second charge.
Read more – Homeowner loans for self-employed borrowers or homeowner loan calculator.
Can I still get a homeowner loan if my lender says no?
Yes, it’s still possible to get a homeowner loan even if your lender refuses to consent to a second charge.
This is achieved through an equitable charge – a charge over your equity, rather than the whole property.
While this doesn’t change a lot in practical terms (other than your mortgage lenders consent not being required), not all lenders lend in this way.
For this reason, you’ll be restricted to only a couple of niche lenders and the rates you pay might increase slightly.
If you’re looking for a second charge loan with an equitable charge and need some help, talk to a reputable homeowner loan broker and they’ll be able to guide you through the process.
