TL;DR
In short
- A second charge mortgage is an additional loan secured on a property that already has a mortgage. It ranks behind your existing (first) mortgage, which stays in place.
- It may suit homeowners who want to keep their current mortgage deal or avoid early repayment charges.
- How much you can borrow depends on the lender’s maximum loan-to-value for your total borrowing, the equity in your property, your affordability and your credit history.
- Interest rates on second charge mortgages are usually higher than remortgage rates.
- It is secured on your home: if you do not keep up repayments, your home may be repossessed.
Sometimes large, unplanned expenses arise. A stolen car, adapting your home for limited mobility after an accident or the chance to buy a valuable item at a good price can all mean you need to raise a substantial sum fairly quickly. If you own your home, one option is to borrow against the equity in it. One way to do this is a second charge mortgage, which we look at in this article.
What is a second charge mortgage?
A second charge mortgage is an additional loan secured on a property that already has a mortgage. It ranks behind your existing (first) mortgage, which stays in place. The equity in your property affects how much you can borrow. (Source: Citizens Advice)
Why should I consider a second charge mortgage?
A second charge mortgage lets you raise money without changing your existing mortgage. As we explained in our article on the UK home extension loan, you can also raise funds by remortgaging, which replaces your current mortgage with a new one. However, this is not always the better option. Remortgaging to raise money may cost more if current rates are higher than your existing deal or if early repayment charges apply.
How much can I borrow with a second charge mortgage?
How much you can borrow depends on the lender’s maximum loan-to-value for your total borrowing, meaning your existing mortgage plus the second charge. Limits vary by lender, and lenders also look at your credit history.
To estimate how much you could borrow, consider three factors:
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Your affordability: the monthly repayments a lender believes you can afford;
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How much of your existing mortgage is still outstanding;
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The current value of your property.
Your equity is the value of your property minus the outstanding mortgage. If property prices rise, your equity grows even if your mortgage balance stays the same, which may allow you to borrow with a second charge mortgage. If prices fall, you could end up in negative equity, which means you owe more than your property is worth. Negative equity limits or prevents further borrowing against your home.
During an initial consultation, we can discuss your circumstances, explain the mortgage process and identify what information is needed to assess your options.
Pros and cons of a second charge mortgage
Whether a second charge mortgage is worth it depends on your circumstances. Here are the main pros and cons.
Advantages
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A second charge mortgage lets you keep your existing mortgage deal in place, which may be worthwhile if its rate is lower than you could get by remortgaging.
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A second charge mortgage can help you avoid early repayment charges that may apply if you remortgaged during your current deal.
Disadvantages
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If you do not keep up repayments on a second charge mortgage, your home may be repossessed, just as with your main mortgage.
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Taking on more secured borrowing raises your overall loan-to-value, which can limit the remortgage deals available to you later.
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Interest rates on second charge mortgages are usually higher than remortgage rates.
Summary
A second charge mortgage may suit homeowners who want to keep their current mortgage deal or avoid early repayment charges. It is secured on your home, so it is worth comparing the total cost and risks with alternatives such as a further advance from your existing mortgage lender, a remortgage or an unsecured loan. However, we would like to invite you now for a free, no-obligation consultation, during which one of our advisors will answer all your questions and help you choose the right product
FAQ
Frequently asked questions
What is a second charge mortgage?
A second charge mortgage is an additional loan secured on a property that already has a mortgage. It ranks behind your existing (first) mortgage, which stays in place.
How is a second charge mortgage different from a remortgage?
A remortgage replaces your current mortgage with a new one, while a second charge mortgage is an additional loan and your existing mortgage stays in place. Remortgaging to raise money may cost more if current rates are higher than your existing deal or if early repayment charges apply. However, interest rates on second charge mortgages are usually higher than remortgage rates.
How much can I borrow with a second charge mortgage?
It depends on the lender’s maximum loan-to-value for your total borrowing (your existing mortgage plus the second charge), the equity in your property, your affordability and your credit history. Limits vary by lender.
What are the risks of a second charge mortgage?
A second charge mortgage is secured on your home, so if you do not keep up repayments, your home may be repossessed. More secured borrowing also raises your overall loan-to-value, which can limit the remortgage deals available to you later.
When might a second charge mortgage be suitable?
It may suit homeowners who want to keep their current mortgage deal or avoid early repayment charges. It is worth comparing the total cost and risks with alternatives such as a further advance from your existing mortgage lender, a remortgage or an unsecured loan.
