How to Get a Second Charge Mortgage

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If you’re a homeowner in the UK, you might never have heard of a second charge mortgage, also commonly called a second mortgage or a homeowner loan.

In this guide, we’ll break down everything you need to know about this specialist type of mortgage, which is a great way of releasing funds from your property without hassle.

We’ll cover:

The pros and cons of a second charge mortgage
Who might be suitable for a second mortgage
The typical application process (and common errors)
Fees and charges

ABC Finance’s value as a trusted second-charge mortgage broker.

What is a second charge mortgage?

Second mortgages let UK homeowners unlock equity from their property without altering their existing mortgage arrangements.

Another way to look at this type of loan is that it is a fast way to borrow money when you don’t want to get caught up in long processes and overly complex financial arrangements.

This type of finance is called a ‘second charge’ mortgage because the lender sits behind the primary lender for repayment, if you default on your mortgage and the property becomes repossessed.

It’s usually available for loans of £15,000 and above, and it can be quickly arranged in 3–14 days with a broker.

How can a second mortgage be used?

A second mortgage is a fast way to borrow money, and it can be used in a variety of ways. For example:

To release funds for home improvement work
To consolidate other forms of debt into a single, easy-to-manage payment at an attractive rate.
To unlock money for the purposes of investing in other property, such as a buy-to-let, as part of a personal investment strategy.
To release equity to help children get on the property ladder.

What are the features of a second charge mortgage?

A second mortgage is a second loan, secured against your home. It sits alongside your existing mortgage, which is known as the first charge mortgage.

The purpose of the homeowner loan is to allow you to borrow money without needing to change your first charge mortgage in any way.

It can give you access to greater funds than a personal loan, with a longer repayment period at a lower interest rate, for greater affordability.

How is a second mortgage different from a first charge mortgage?

The primary difference between a first and second charge mortgage is the purpose of the product.

The second mortgage is a fast way to borrow money for any purpose.
The first charge mortgage is taken out expressly to purchase the property in the first place.

However, both mortgages require sufficient equity in your property. The second mortgage is a separate loan that uses your existing home’s equity for security.

This means that your home could be repossessed if you don’t meet your repayments.

Keep reading – How to get a second charge mortgage to raise capital against your home equity or second charge mortgage calculator.

Why might someone want a second charge mortgage?

There are several reasons that homeowners look for a second charge mortgage.

Speed: Because a second-charge mortgage is a fast way to borrow money for any purpose, many homeowners value the speed of these homeowner loans, especially when a second charge mortgage broker can secure a product quickly, at a great rate.
Ease Homeowners also like these loans if their existing mortgage is set at a low rate, and they don’t want to increase it by remortgaging.
Access to finance: Another common situation is when the existing first-charge lender won’t offer any further funds. In this instance, homeowners look for a homeowner loan from a lender with less restrictive terms, who can give them fast and reliable access to the financing they need.
Interest rates: Many homeowners also prefer to unlock equity from their house for a competitively priced homeowner loan rather than take out an expensive unsecured personal loan.

Who can apply for a homeowner loan?

Eligibility for a second charge mortgage varies according to the lender. A second charge mortgage broker, such as ABC Finance, can search the entire market for the most attractive terms and the products that best meet individual needs. Typical eligibility is as follows:

Property equity

You must have enough equity in your home. This is the difference between the value of the property (defined by the lender) and your outstanding mortgage balance.

Credit history

Your credit history is a key factor in securing any kind of finance. A good credit score improves your chances of being approved for a second charge mortgage at a favourable rate.

It’s still possible to get a second mortgage with a poor credit score, but you might prefer to use a second charge mortgage broker to improve your access to the right products.

Affordability

You’ll need to demonstrate that you can afford the loan. Lenders will ask to see your income and outgoings in detail to assess your overall financial health and ability to handle repayments.

First charge lender consent

Many people don’t realise that the first charge lender must approve a second mortgage, even if it’s from another lender. A second charge mortgage broker can handle this administration.

Type of property

A second mortgage can be taken out on a residential property or a buy-to-let property (as long as the conditions above apply). However, the criteria may differ between the property types.

What are the pros and cons of a second mortgage?

It’s vital to understand the advantages and disadvantages of a second mortgage before you enter into one. Although a homeowner loan is a fast way to borrow money, it does come with features that don’t suit everyone.

Your second charge mortgage broker is there to help you assess whether the product is a good fit for your unique situation.

Pros of a second mortgage

You can keep your existing mortgage deal. This avoids administrative hassle and the threat of early repayment charges. It also maintains the existing status of any favourable first charge mortgage you might wish to keep.
You can borrow a larger sum with a second mortgage than you can with a personal loan. This is because the second charge mortgage is secured against your property.
Funds from a second mortgage are incredibly flexible and can be used for nearly any kind of (legal) purpose, making these loans attractive for borrowers with varied needs.

Cons of a second mortgage

Puts your property at risk. All secured loans come with risk. If you miss your repayments, your home may be repossessed.
Higher interest rates and fees: These specialist mortgages tend to be more expensive than first charge mortgages. This is even more so the case if you have a less-than-perfect credit history. There are fees and charges (valuation, legal fees, application fees) to factor in, too, and again, these can be higher.
Affordability effects: When you take on a second commitment, you increase your total debt and lower your equity in your property. This affects your net worth and affordability.

How to apply for a second charge mortgage

To apply for a second charge mortgage, follow this process:

Assess your financial situation

Know how much you want to borrow and how much equity you have in your property. Consider checking your credit report and be sure that your income is certain and adequate. Online calculators can be useful at this early stage.

Speak to a second charge mortgage broker

A second charge mortgage broker offers a number of benefits to your application as follows:

Specialist in the second charge mortgage market
Access to a wider panel of lenders (many of whom don’t advertise on the open market, and who may only lend via brokers)
Access to valuable advice and support throughout the process.
Ability to speed up the process by handling administration and avoiding errors.

Contact your first charge mortgage lender

Contact your existing mortgage lender to get their consent to seek a second mortgage. You may find that they offer you an additional advance on the existing first loan, which can be simpler and cheaper than taking out a new secondary product.

Shop around

Comparison is tricky in this specialist market. If you are using a second charge mortgage broker, they will do this for you. If you are going direct, you will need to carefully review the whole market and see which products you can apply for directly.

Apply for your product

You will need to have ID documents, proof of income, bank statements, monthly expense breakdowns, and details of your existing mortgage. The lender will carry out a credit check and an affordability assessment. Note that this hard search leaves a trace on your credit record.

Wait for the property valuation

Your target lender will confirm how they want to value your property. Some will do a desktop valuation, and others will want to visit your property directly for a full valuation. This is to determine how much equity is in the property.

Progress with legal work

You will appoint a solicitor, or the lender will require that you use their appointed legal firm. The solicitor will handle the paperwork and obtain formal approval of the charge from the first mortgage lender. If you are using a second mortgage broker, they will ensure that the process runs smoothly and keep everyone in the loop with regular communication.

Await the funds

Once the second charge mortgage is approved and the contract is signed, you will receive the funds as a transfer to your nominated bank account. The repayments will begin on the agreed date, for the agreed sum.

How to get the best deals on a second charge mortgage

Use a second charge mortgage broker like ABC Finance to give you access to more offers. This market isn’t transparent like the mainstream mortgage market, and many specialist lenders don’t advertise directly to customers. Some will only lend via brokers.
Remember to factor in the full cost of the deal, including fees.
Don’t borrow too much.
Seek expert broker advice to avoid expensive errors and time delays.
Consider alternatives such as remortgaging, a personal loan, or equity release if you are aged 55 or above.