Second Charge Mortgage Broker
Second-charge mortgages are secured against the equity in your property and are taken out in addition to your first-charge mortgage. They’re often used as an alternative to getting an unsecured loan or remortgage.
In this article, we’ll cover, in detail, how second-charge mortgages work and how we, as second-charge mortgage brokers, can help you.
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How Second Charge Mortgages Work
So, as we’ve covered already, second-charge mortgages are taken in addition to your existing mortgage. The amount your mortgage lender is happy to lend for your second mortgage will depend significantly on the LTV ratio.
And, like with your first mortgage, your lender will consider your credit score, employment status, age, and debts when judging how much this ratio will be.
They also work like your first mortgage: you repay money monthly or for an agreed term of five to 30 years. These mortgage loans can also be either variable or fixed rate.
These mortgages have been regulated by the Financial Conduct Authority (FCA) since 2016, meaning they have to comply with rules such as affordable lending and dealing with payment difficulties.
Second mortgage fees
The fee structure will likely be quite similar to primary mortgages; however, you can anticipate that a second mortgage will be more expensive. This is primarily because of something known as the risk of repossession.
If you end up in arrears, your first charge lender will have the first call on the property. Only after that can a second charge lender come and try to come proceeds from the sale.
Why Get a Second Mortgage
A second mortgage might be a good idea for you if:
- You don’t have a good credit rating or recently lost your job/source of income. This means that if you were to remortgage, your interest rate would be higher. A second mortgage is a great way to keep your current mortgage while adding on an extra bit of money.
- For instance, you may not qualify for a personal loan because you’re self-employed.
- Your mortgage has very high early repayment charges making remortgaging a terrible idea.
Challenges of Getting a Second Charge Mortgage
On the other hand, getting a secured mortgage may not be a good idea for you, if:
- The interest rate you’re charged on the second mortgage is too high.
- You can’t afford to make two mortgage payments each month. Failure to pay either puts your property at risk.
- You might pay more anyway, even though your monthly payments are cheaper.
In addition, you may only be able to get a mortgage loan if your mortgage lender permits you to get a second mortgage loan.
What We Do for You
As a second-charge mortgage broker, we work between you and the mortgage lender, offering expert and independent advice. We attempt to find the best deal for your particular circumstances.
Deciding on A Second Mortgage
Deciding on a secured mortgage takes work. Mainly because of the commitment – imagine spending the next five years or more making two mortgage repayments yearly. But if you’re sure you’re ready to go through with it, then be sure to:
- Make sure that all your payments are up to date.
- Assess your credit score.
- Compile all the documents the lender may request (such as bank statements/income statements).
- Generally, tidy up your finances.
Some lenders may be just as scrutinous for your second mortgage as they were with your first.
What Do I Need to Get a Second Mortgage
To get a second mortgage, your lender will request/expect certain things from you; let’s list those out:
- You’ll need enough equity on your property to make it viable.
- You’ll have to have enough money to pay off both mortgages consistently each month.
- You’ll need your ID, proof of income, banking details, expenses and credit history. This is specifically required if you’re getting your second mortgage from a different lender.
You may also need to provide other information and documents as requested by your lender. Also, anticipate valuation, administration or legal fees, and early repayment charges if you want to pay your mortgage off early.
How Much Can I Borrow?
Well, the amount you can borrow on a secured mortgage will depend on the equity you have in your home. This is determined by subtracting your property value from your first mortgage balance.
If your property is worth £500,000 and your mortgage £100,000, then you have £400,000 equity. This means that you own, outright, 80% of your property. Higher equity will improve how much you can borrow.
The Problem With Secured Loans
The problem with secured loans is not the mortgages themselves but what homeowners generally do with them. For example, some will take a secured loan and use it to pay off their credit card, but then they go right back to borrowing. Now, they have a second mortgage and more debt.
You see the problem: people pile debt onto debt. When someone is struggling to pay debts, sometimes borrowing more money isn’t the answer.
Further Advance Loans
If you’re not interested in taking out another mortgage, then you could always take out a further advance loan. This is typically from the same lender but at a higher interest rate than the initial mortgage. Like a second mortgage, it’s also secured on your property.
They’re generally offered a different (and higher) rate than your main mortgage. However, you may opt to do this if your lender generally offers competitive rates.
Secured Mortgages for Unique Circumstances
Secured mortgages may be a good decision for those in unique situations, such as:
- Retirees
- People with bad credit
- The self-employed
- Those with buy-to-let properties
Let’s explore each one in detail.
For retired borrowers
Getting any mortgage is more complicated after you reach a certain age, but second-charge mortgages can be even more challenging. Many lenders won’t even consider retired borrowers. This is for several reasons, most specifically because these mortgage loans are usually long-term, and the older you are, the less sure they are that you’ll see it to completion.
Additionally, as a retiree, you’ll likely earn less than when you were employed. However, all hope is not lost. Some options for older borrowers are still available, such as retirement interest-only mortgages.
With these loans, you’ll have to pay the interest off each month only.
For those with a poor credit rating
Because these loans, unlike unsecured loans, offer security to lenders in the form of your property, lenders are more likely to overlook a bad credit record. This makes secured mortgages a good choice for those with bad debt.
For the self-employed
When you’re self-employed, it can prove more challenging to get a mortgage lender, but don’t worry, we’ll be able to find a lender that’ll be able to help you. You can anticipate, however, that if you’ve already built up a lot of equity, you won’t have too many issues.
FAQs
What is a second charge on a mortgage?
Also known as secured loans, a second-charge mortgage lets you borrow money while still keeping your existing mortgage.
What is the difference between a first charge and a second charge mortgage?
First-charge mortgages are a way to get money to buy your home, and second-charge mortgages are a way of getting additional funds to pay for your home. However, first-charge mortgages have a collateral preference, and because of this, second-charge mortgages have higher interest rates.
Is it easy to get a second-charge mortgage?
Second-charge mortgage applications are much more accessible compared to a primary mortgage. And in fact, one of the main attractions of second-charge mortgages is that people with less-than-perfect credit scores can get approved.
How long does a second charge on a property last?
A second-charge mortgage will generally run from five to 25 years, but it can be as long as 30 years.
Does a second charge mortgage hurt your credit?
A second-charge mortgage will temporarily drop your credit score; however, if you make regular repayments on time, your credit rating will rebound within a year.
How do I put a second charge on a property?
A second charge mortgage is subject to your mortgage lender’s permission, and while getting approved for one may prove complicated, it’s definitely possible. You can start the process by contacting us so that we can get ahold of one of our secured loan lenders.
Contact Us for Help With Your Mortgage
With over 200 UK lenders on our panel, we at LoanCorp will easily be able to connect you with second-charge lenders that can help you with a secured loan.
Contact us at 0808 301 9509 or fill out our online form to get approved within 24 hours for a mortgage.