A second charge is an additional mortgage for a borrower on their current property. To apply for a second charge, the borrower must be a homeowner with a first charge mortgage. Our clients often demand second charge loans to prevent a re-mortgage of their first charge.
As the vast majority of mortgage products are arranged on a fixed interest rate basis, if the loan is redeemed before the fixed expiry date, an early repayment charge becomes payable. Early repayment charges are often for thousands of pounds and, thus, should be avoided when possible. Second charges provide a solution to the early repayment charge dilemma.
However, second charges have their downsides. Firstly, they are more expensive than first charge mortgages. This is because, for the lender, there is greater risk attached. In the event of a repossession, the second charge lender is paid after the lender of the first charge.
Therefore, if the property fails to sell, or sells at less than the value of the secured loans, the second charge lender does not receive the full value of their loan offering. For this reason, a higher interest rate is charged for second charge loans compared with first charge equivalents.
In addition, second charge loans are not often offered by mainstream lenders. Instead, they are offered by second charge specialists that have complex internal processes. Therefore, expect a longer completion time for second charge applications.
Common Uses for Second Charge Loans:
- Debt Consolidation
- Home Improvements
- Second Property Deposits
- School Fees
According to current lending criteria, after the second charge has been arranged, the homeowner must maintain a 15% equity share of the property. This means that second charges would not be suitable for those borrowers with 15% equity or less. A re-mortgage or further advance with an existing lender may be more suitable for borrowers in that position.
For further information on Second Charge mortgages, click the ‘Contact Us’ button and submit an enquiry. Our advisers would be happy to assist. Consultations are offered free of charge.