How To Get A Second Charge Mortgage To Raise Capital Against Your Home Equity
Get a second charge mortgage with a market leading 5.5% broker fee – capped at £2,195. Get the best deal with ABC Finance.
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Looking to raise capital against your home equity? A second charge mortgage can be a good option.
This type of secured loan lets homeowners borrow money quickly, using the equity in their home.
In this article, we’ll cover everything you need to know about second mortgage products and the best way to apply for one.
What are the features of a second mortgage?
A second mortgage, sometimes called a homeowner loan, is secured against property. For example, this property could be your own residential home or an investment property. It has several specific features that set it apart from other types of secured loans.
A second charge mortgage allows you to release equity from the property and access it for other purposes. The second mortgage sits behind the first charge mortgage, meaning the homeowner pays two monthly mortgages.
The second charge mortgage also leaves the first mortgage completely untouched. This attracts homeowners whose first mortgage has an attractive rate they don’t want to affect.
Typically, second charge mortgages are:
- More expensive than first charge mortgages, as they represent a higher risk for the lender.
- Typically offered via the brokerage market and not directly on the open market to consumers (because they are specialist financial products).
- A viable way to quickly access more finance than a secured loan offers
- A fast way to secure a home equity loan; many second mortgages can be arranged in a matter of days, especially if you use an experienced broker like ABC Finance.
- Popular with people already on a good mortgage deal, but whose first charge lender will not increase borrowing. Others are self-employed, and some will have adverse credit. A mortgage broker can help navigate all situations for the best results.
Read more – Second charge mortgage rates or try our second charge mortgage calculator.
Why do homeowners take out second charge mortgages?
Property owners apply for second charge mortgages for a variety of reasons. For example:
- To raise capital for home improvements
- To consolidate other existing debts
- To facilitate an investment, such as buying a second property
- To help children get on the property ladder by releasing a deposit
- To invest in a business venture.
Second mortgages are flexible types of secured loans ideal for homeowners who want to raise capital without affecting their main mortgage.
When is a home equity loan better than remortgaging?
There are various circumstances where a second charge mortgage would be preferable to a remortgage. For example:
- If you’re already locked into an attractive, low-rate mortgage
- If you would incur early repayment charges for ending your first charge mortgage early
- If your credit profile has recently changed.
- If your earning status has changed.
In many situations, a second charge mortgage is more cost-effective and practical than other secured loans.
At ABC Finance, our brokers work with each client individually to offer expert guidance on the best options. We can find finance solutions for all kinds of needs and situations.
How to buy a second property using equity
The best way to use equity to buy a second property is typically with a second charge mortgage or home equity loan.
If you already have equity in your home or an investment property, you can release it as capital via a second mortgage. Many people do this to debt finance a smart investment rather than raising a deposit equivalent through more expensive types of borrowing.
So long as there is sufficient equity in your property to satisfy the second charge mortgage lender, and you meet the criteria, it is possible to release capital to purchase a further property quickly.
However, the first mortgage charge has to be approved for your home equity loan.
In some cases, the enquiry will prompt a better offer from the first-charge lender who wants the business! But where that isn’t forthcoming, the second-charge mortgage market is fast and responsive.
For investors looking to build a property portfolio, this allows them to rapidly achieve their goals and use the principles of gearing to achieve their portfolio ambitions.
How much can you borrow against your equity?
Most lenders will allow you to borrow up to 90-95% of a property’s value, less the existing mortgage.
Your second charge mortgage broker will help you work out the figures, offering a second charge mortgage calculator for scenario testing or providing exact figures according to your needs.
The factors that will typically influence borrowing include:
- Your income and affordability
- Your credit score
- Any existing debts you might have
- The property value, type and location
Each lender has its unique criteria, and an experienced broker like ABC Finance will know which lenders to approach depending on your unique needs and equity position.
Your broker will quickly calculate how much capital you could release under the current lending conditions and enable soft searches to assess which lenders will likely offer you a deal. This protects your credit rating against multiple hard searches, which can negatively affect it.
What is the application process for a home equity loan?
Often, a client will use a second mortgage broker such as ABC Finance. This is because second mortgages are a specialist kind of secured loan that isn’t widely available on the market.
Most second-charge lenders operate solely through the broker market for speed, ease, and efficiency. Your broker will save you time and money by assessing which lenders are best suited for your unique situation and securing the best deals for you.
Step 1: Initial assessment
The broker will work with you to understand your property’s equity, financial position, and borrowing goals. They will also gather your home equity loan application documentation, including your ID, proof of income, expenses, and current mortgage details.
Step 2: Lender comparison
If homeowners try to go directly to the open market, they will typically only find a few offers. Most second charge mortgages are only available through brokers. Note that rates for second charges vary greatly and this is because of risk-based pricing.
If you have poor credit, for example, you will pay more for a second charge mortgage than someone with plenty of equity, a lower desired LTV, and a higher income. ABC Finance compares the best rates in real estate and negotiates with lenders to get clients the best possible deals.
Step 3: Quotation
The lender will conduct a soft credit check and make a provisional offer based on your financial circumstances. ABC Finance optimises this process by knowing exactly which second-charge lenders to approach based on your needs and situation.
Step 4: Property valuation
The home equity loan lender will value the security property using a desktop valuation or a physical survey.
Step 5: Underwriting, legal work and offer
At this stage, the lender will conduct a complete affordability assessment using the information gathered and provided by the broker. The lender will issue the loan offer if everything is correct and acceptable.
At this stage, basic legal checks are carried out to register the second charge, and the funds can be released. This entire process can take as little as 2–4 weeks. Occasionally, faster services may be possible, although note that this will typically increase the cost of the home equity loan.
When you use a mortgage broker like ABC Finance, the entire application journey is quick, accurate and complete, so there are no delays or stresses.
What fees are involved with a second charge mortgage?
Various fees are associated with second charge mortgages, from broker fees to early repayment charges.
Broker fees
All financial brokers charge a fee for their services. At ABC Finance, we are committed to offering excellent value. We offer a very low broker fee, at 5.5% of the total loan amount, compared to an industry standard of 12.5%.
We can do this because our business is tech-enabled, efficient and values-driven. We put our customers’ needs above ours and get a high degree of repeat business, so everyone wins!
Other costs to consider include:
- Interest rates, which are usually more expensive on a home equity loan than on a first mortgage
- Valuation and legal fees, which can generally be added to the loan
- Early repayment charges, which may be due on the first charge mortgage or the second mortgage.
At ABC Finance, our brokers explain all fees carefully and up front so you know exactly what to expect and aren’t hit with any unwanted surprise costs later on!
What are the pros and cons of a second charge mortgage?
Second mortgages offer pros and cons like any other kind of secured loan. These include the following:
Pros:
- A way to preserve a low-rate first charge mortgage
- A flexible and fast way to access additional borrowing (usually at a larger sum than a standard secured loan would allow).
- Often cheaper than unsecured borrowing.
- Available to borrowers with adverse credit or non-traditional forms of income (multiple forms of self-employment, for example).
Cons:
- Second charges are secured against your home, so there’s always a risk of repossession if you don’t meet your repayments.
- Second charge mortgages are more expensive than first mortgages.
- Second charge mortgages increase your total secured debt, reducing the equity in the property.
An experienced broker like ABC Finance will explain the pros and cons in depth, depending on your specific situation and goals.
We will also explain other alternatives where they are more suitable. These could include remortgaging, unsecured loans, or equity release if you’re over 55 and wish to consider a lifetime mortgage or home reversion scheme.
We don’t push our brokerage products. As an FCA and FIBA-accredited broker, we are wholly committed to giving our clients the best advice for their unique needs.
Read more – second charge mortgage broker or how to get a fast second cFast Second Charge Mortgagesharge mortgage.
Contact ABC Finance today
The key to finding the best home equity loan for your needs is to work with a regulated broker like ABC Finance. They will help you explore your options, offer expert guidance, and manage the entire process from beginning to end. This saves clients time, money, and stress!
Contact us today for a free, no-obligation consultation and to learn which options are available for securing capital against your home equity.
