Second Charge Mortgages

If you are looking to raise money against your home or a property you own you should explore second charge mortgages as a way to achieve this. Here we talk about this finance option in detail.

What are Second Charge Mortgages?

As a property owner you may want to raise money against your property for a variety of reasons such as home improvements (for example, loft conversion, new kitchen & bathroom, conservatory etc), or maybe you want to consolidate your debts to reduce your monthly outgoings, or perhaps you want to raise money for a new car, or deposit for another property. There can be many reasons for capital raising against your property and this can be achieved by taking out a second charge mortgage against your property – also known as a Secured Loan.

Ways you can borrow money?

When borrowing money you should explore all possible ways in which this could be achieved such as:

• Unsecured Personal Loan – Typically these are over 5 years and you can borrow between £500 to £25,000.
• Further Advance with your existing mortgage lender.
• Second Charge Mortgage (Secured Loan) – These can be £10,000+ and over a term of 25 years.
• Remortgage – Typically £25,000+ and over a term of 25 years.

There will be pros and cons to the above mentioned ways of borrowing money. You should thoroughly explore all your options and this will allow you to make the right decision going forward.

What are the Advantages of Second Charge Mortgages?

• You can borrow larger sums of money when compared to a personal loan which is helpful as major home improvements can be expensive.
• A second charge mortgage could be over a longer term such as 25 years therefore you can spread out the monthly payments.
• If you have some bad credit registered such as missed payments, defaults or county court judgements you may struggle to find an unsecured loan, however as the lender has the property as security for the loan they are more willing to help you.
• You may have an early redemption fee to pay if you were to remortgage to raise the money, so therefore a second charge mortgage would avoid this fee.

What are the Disadvantages of Second Charge Mortgages?

• An unsecured loan could take a matter of days to complete, however for a secured loan from application to completion this can typically take around 4 weeks to complete as a valuation would be needed on the property, plus thorough due diligence will be needed to ensure any borrowing against your property is affordable both in the short and long term.
• If you don’t keep up with the monthly payments the property maybe repossessed.
• When compared to an unsecured loan there will more than likely be additional set up fees to pay such as a valuation, lender and broker arrangement fees.

Who offers second charge mortgages?

These are generally provided by specialist lenders who offer their loans through mortgage and loan brokers. It is important to use a broker who is able to look at both remortgage and secured loan options to ensure you get the right advice.

How long does a second charge mortgage take to arrange?

Typically they take 4 weeks to complete. A valuation will need to be done on the property and this could be a physical or an online valuation depending upon the loan amount and how much equity there is in the property. The lender will fully underwrite the case and if happy with all the documentation provided they will produce a mortgage offer which you typically have to sign and return. Upon receipt of this the lender will arrange for a completion where you will be paid the loan proceeds.

What documents would be needed?

You will need to provide several documents such as:

• Proof of Identity – this is a Passport &/or Driving License. Make sure they are in date and the address is correct on the driving license.
• Proof of Income – If you are employed you would need to provide your last 3 months payslips and P60 or if you are Self Employed you will need to provide at least your latest tax calculations and tax overviews.
• Bank Statements – You would need to provide your last 3 months bank statements.
• Lender Documents – The lender will have their own documentation such as an application form and Direct Debit Mandate which will need to be completed.

The lender always has the right to request additional information to complete their underwriting.

Can you take out second charge mortgages on your home or a Buy To Let?

Yes to both – You are able to take out second charge mortgages on your main residence or on a Buy to Let property. Different lender criteria will apply to see if this is possible. Interest Rates tend to be lower on loans secured against your home when compared to loans against a Buy To let as these are deemed more risky.

What happens if I sell the property?

When you sell the property the main mortgage lender would have to be paid first to clear the debt and then the second charge would need to be paid also. Any surplus equity will then be paid to you.

What are second charge interest rates?

This really can vary depending upon many factors such as:

• Your credit profile – If you have bad credit registered your interest rate will be higher when compared to someone whose profile is Excellent. Additionally the more recent any bad credit has been registered that will class you as a higher risk and the rate will therefore be higher.
• How much equity you have – If the secured debt on the property is low when compared to the property value this will be less risky and therefore a lower rate will be offered, but if you have minimal equity any drop in property prices could result in the lender not getting their money back if you were to default, so this would be more risky and a higher rate would be offered.

How to arrange a second charge mortgage?

The advisers at The Money Hub are very experienced when it comes to arranging and advising on second charge mortgages. Please either call the office or complete the above enquiry form to explore your options.