Second Charge Mortgages Explained

Think carefully before securing any other debts against your home - it could be repossessed if you don’t keep up your repayments.

What is a second charge mortgage?

A second charge mortgage is a type of loan which is secured against your home. It’s very similar to your normal mortgage, where you’ll borrow a certain amount using your home as a guarantee in case you can't pay it back.

Lenders work out the difference between how much the property is worth and how much you still owe on your first mortgage. 

Second charge mortgages are totally separate from your current mortgage - it essentially means you’ll have two mortgages running on your home. Taking out a second charge mortgage allows you to borrow money for a variety of reasons, without having to lose your current mortgage.

A legal ‘charge’ is what mortgage lenders use to enforce their rights to a property. Your main mortgage is your first charge, and that will always take precedence over the second charge. 

People who take out second charge mortgages are usually raising funds for bigger purchases such as home improvements (extensions, renovations etc), business costs, or consolidating debts.

How are second charge mortgages different from remortgaging? 

Remortgaging is when you replace your existing mortgage with a new one. A second charge mortgage is a loan that’s secured against the equity in your home and runs alongside your existing mortgage. The option that’s right for you will depend on your individual circumstances. 

If you need a loan but are still within a fixed mortgage deal, a second charge mortgage is a preferable option. If you’re on a variable rate mortgage and want to borrow more, remortgaging could be the way to go. Make an enquiry to chat through your refinancing options. 

You can read more about remortgaging in our Complete Guide. 

How do second charge mortgages work?

When you take out a normal mortgage, the amount you’re borrowing is placed against the value of the property. So if you buy a home for £100,000 and you have £10,000 for a deposit, you’re borrowing £90,000, making for a loan-to-value (LTV) of 90%. 

When taking out a second charge mortgage, lenders add up the debt you have on your existing mortgage and the amount you want to borrow on the second charge. The total can’t be more than that lender’s maximum LTV. 

As with most mortgages, the higher the LTV, the higher the interest rate. So the more equity you have in your home, the more competitive your rate will be.

How much can I borrow on a second charge mortgage?

All lenders have a different maximum LTV, so what you’ll be able to borrow on a second charge mortgage will depend on who you go to. 

It’ll also depend on your income and the amount of equity you have in your home. 

It’s best to work with a specialist second charge mortgage broker who can help you find the right deal for you. Our Mortgage Experts have seen it all, and can help you find a suitable deal. Make an enquiry to find out your options.

Can I get a second charge mortgage with bad credit?

Yes, it’s definitely possible to get a second charge mortgage with bad credit. It’ll be more difficult compared to someone with cleaner credit, but a poor credit rating won’t stop your application in its tracks. You’ll just need to go a more specialist route.

The big banks and high street lenders aren’t set up to deal with more complex applications, but specialist lenders exist to help people who don’t fit the mould of the ‘perfect mortgage applicant’.

Second charge mortgages are more specialist, and adding another layer of complexity can make things difficult. Luckily, difficult is what we do. We’re experts in bad credit mortgages, and have plenty of experience getting second charge mortgages for people with adverse credit. Make an enquiry to chat to one of our friendly Mortgage Experts. Opening up can be tough, but it only takes 60 seconds and we’re a judgement-free zone.

Can I get a second charge mortgage if I’m self-employed?

Yes, you can absolutely get a second charge mortgage as a self-employed person. You’ll just need to submit a good application with lots of evidence of your earnings. 

Some self-employed people find that it's simpler to get a second charge mortgage than a regular loan or credit card because it's secured against a property, and therefore gives the lender some security if your income fluctuates.

A broker that specialises in second charge mortgages for self-employed people (like us!) can help you find the right deal with the right lender. The complex stuff is all we do. Make an enquiry to get started.

How do lenders assess my second charge mortgage application?

When looking at your second-charge mortgage application, lenders will be assessing you in a similar way to when you got your first mortgage. They’ll check your credit history and test your affordability to make sure you’ll be able to pay back the loan without struggling. Your home will also be valued to work out how much equity you have in it.

Read more in our Guide: What Lenders Look For in Mortgage Applicants

Are second charge mortgages more expensive?

The old saying goes "the greater the risk, the greater the reward". Interest rates are usually higher on second charge mortgages because the lender who has the first charge always gets paid before the second charge lender. 

For example, if you got repossessed and the sale of the home wasn’t enough to cover both mortgages, the first charge lender would get priority being paid, and the second charge lender would lose money. 

But this doesn’t mean you can’t get a competitive deal. Working with a specialist second charge mortgage broker can give you access to deals you wouldn’t find on your own. They’ll also look at the total cost (not just interest rates) of any mortgage deal, including fees or early repayment charges.  Make an enquiry to find out your options. 

Are second charge mortgages risky?

As with any type of mortgage, if you don’t keep up with repayments then you run the risk of losing your home. Bear in mind if you come to sell the house, then it's always your first mortgage that needs to be cleared first, before any extra money goes toward paying off the second one.

If you’re looking to consolidate debts, or only need to free up a small amount, then taking this approach might mean that you end up paying more interest in the long term too. You should think carefully before moving any unsecured debts to secured debts as your home is at risk. If you’re only just managing to repay your current mortgage, then it’s probably not a good idea. 

It’s best to get independent advice from a specialist mortgage broker before applying for a second charge mortgage. Our Mortgage Experts have seen it all and aren’t judgemental. You can make an enquiry to chat through your options.

What are the pros and cons of second charge mortgages?

Whether or not to take out a second charge mortgage is a big decision. Here’s some of the pros and cons of second charge mortgages:

Pros:

• You can keep your existing mortgage deal – ideal if you’re on a good rate or your credit rating needs a bit of work.

• Avoid early repayment fees by not remortgaging your fixed deal.

• You can keep your current mortgage term.
  

Cons:

• You’re risking your home if you can’t make repayments.

• Both mortgages need to be paid off in full if you move house, meaning less wiggle room for a deposit.

• Interest rates tend to be higher as there’s a bigger risk for the lender.

How do I take out a second charge mortgage?

Lots of banks and building societies in the UK offer second charge mortgages. But with so many different deals, and usually a lot of technical jargon, it’s hard to know where to start. 

The first thing to understand is how much equity you currently have in your home, and how to show you can afford the repayments on both mortgages. You’ll also need approval from your current mortgage lender before you can take out a second charge mortgage.

It’s a tricky process, so it’s best to work with a specialist mortgage broker (like us!) who’ll listen, look at your situation, and find the right options for you. Our Mortgage Experts can also recommend other options you might not have considered. Get in touch to find out your options.

How long will it take?

Second charge mortgage applications are normally quicker than the first time around. It all depends on which lender you apply to, but you should usually expect to wait around four weeks. 

Alternatives to second charge mortgages

If you're looking to take out a lump sum of money, a second charge mortgage isn’t your only option. The main alternatives to taking out a second mortgage on your home or property are:

Get a further advance on your current mortgage 

A further advance is when you borrow more on your existing mortgage from your current mortgage lender. The extra amount is usually at a different interest rate from your main mortgage. A further advance is an addition to your existing mortgage, whereas a second charge is a completely separate loan. 

Remortgage 

Remortgaging is where you replace your existing mortgage with a new one. It can be a good option if your fixed deal has ended or if you want to keep everything in one place. You risk paying big penalties if you remortgage before your current deal is up, and the application process can be as in-depth as the first time around. 

Personal loan

If you’re worried about putting your home at risk, there are options such as personal loans or credit cards. Unsecured debt tends to come with a higher interest rate because there’s a bigger risk on the lender’s side and you typically aren’t able to borrow as much as you would with a secured loan.

Always think carefully before taking on any extra debt. It’s best to get advice from an independent financial advisor before making a big financial commitment. Our Mortgage Experts are available seven days a week to discuss your options.

Second charge mortgage advice

It's always best to get independent financial advice before committing to something like a second charge mortgage. Second charges can be an appealing alternative to remortgaging or loans/credit cards, but you should always consider all your options before securing more debt against your home. 

Our Mortgage Experts have seen it all. They live and breathe the mortgage market, and can make recommendations based on your unique circumstances. They can find a mortgage that fits your needs and your budget, and help you put together a great application. They can also recommend alternatives that you may not have considered. Using a mortgage broker can feel like another upfront cost, but getting expert advice will save you money in the long run.

Make an enquiry to speak to one of our friendly Mortgage Experts. It only takes 60 seconds and doesn't affect your credit rating.