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What is a second charge mortgage?
A second charge mortgage is a mortgage that is taken out against a property that is already being used as security for another loan. This usually happens when the borrower needs to raise additional funds and does not want to take out a new first mortgage. The second charge mortgage lender will then take a charge over the property, after the existing first mortgage lender.
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How does a second charge mortgage work?
A second charge mortgage is a loan for a specific amount of money that must be repaid over a certain period of time, for example, 15 years. With a repayment secured loan, both the capital and the interest must be paid.
Some lenders do offer second charge mortgages on an interest only basis, but this depends on the lender’s criteria and may affect the interest rate of the loan.
The lender will ask what the money is for, for example it may be for home improvements, a new car, a deposit for a buy to let property, debt consolidation, etc. Different lenders have different rules on what they will lend for, so depending on the intended use of the money, this could affect the lender that you choose.
Second charge mortgage payments are made like any other mortgage, and if payments are missed, this could cause problems. The lender would begin to report missed payments to the credit reference agencies and would send letters to the borrower to make them aware of the situation. If the situation continued, the lender would begin legal proceedings. After a long enough period, the lender may be granted the right to take possession of the home, so it is essential that a second charge mortgage is paid like any other loan.
How long does a second charge mortgage take?
The amount of time a second charge mortgage can take will vary between lender to lender and also the case. Everybody’s situation is different so this will affect timescales.
A common amount of time for a more straightforward second charge to get agreed is around 4-6 weeks.
There are various things that can slow down the process. For example, how quickly you deal with your broker, give answers and all your required documents will be a factor.
From there, how quick the lender is to review your case and ask for more information will affect things.
The lender may also need to send someone out to inspect and value your property so this can hold things up. Sometimes they may be able to use an online valuation / desktop valuation of some sort which often makes things quicker.
If a solicitor is needed, that is another party that can take time so something to factor in and as your current lender will usually need to consent to the second charge taking place, a slight delay could happen there.
That is why giving timescales can be very difficult but for a simple case, 2 to 4 weeks is a good guide.
What can I use a second charge mortgage for?
There are many uses for a second charge mortgage, the most common reasons are:
- You are tied into a rate with your current mortgage lender and there will be early repayment charges to remortgage.
- You are currently on a low rate and do not want to lose this rate but need to raise extra capital.
- You have been offered a further advance with your current lender but the rate is not competitive.
- You are currently on an interest only mortgage and do not want to change this to a repayment mortgage.
- You wish to capital raise for business purposes, including deposit for a buy to let property.
- You want to retain your current mortgage but have adverse credit.
- You are recently self employed, retired or obtain income from multiple lenders.
How much can I borrow on a second charge mortgage?
The amount that you can borrow on a second charge mortgage is determined by the value of your property and your affordability.
What credit score is needed for a Second charge mortgage?
There’s no set amount you’ll need for a secured loan if you have adverse credit, as it’ll depend on the lender. However, some lenders may be more willing to give you a loan if you have adverse credit. Just remember that you may end up with a higher interest rate if you go this route.
If you want to learn more about your credit file, you can visit Experian, Equifax or Transunion. A website that covers all three is Check My File.
Is it easy to get a second charge mortgage?
The answer to this question depends on the circumstances. Every lender has different rules, but for residential second charge mortgages, the lender has to run affordability checks like any other mortgage. There can be more flexibility with them though in terms of use of money, maximum loan, and advisers’ history, so it’s best to talk with an adviser. Tell the adviser your full circumstances and let them work out your options.
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Can a mortgage company refuse a second charge?
Yes, a mortgage company can refuse a second charge mortgage. This usually happens if you are looking for a mortgage that is above their loan to value limit, you have a poor credit score, or if the lender does not feel comfortable lending on the property.
Can I remortgage if I have a second charge on my property?
You may be able to, but this will depend on your particular circumstances and the second charge on your property.
If you are looking to remortgage, we would recommend that you speak to a mortgage adviser to discuss your options.
Can I sell my house if I have a second charge mortgage?
Yes, but you will need to repay the second charge mortgage first. You might be able to remortgage to do this, depending on your circumstances.
Can I get a Second charge mortgage on a buy to let property?
Some lenders will offer a secured loan on a buy to let property that already has a mortgage. The rules work a bit differently here, as the amount you can borrow will be linked to the rental value of the property. Some lenders will make an allowance if they feel you have a high personal income that they can consider too (they call this top slicing).
Buy to let secured loans are unregulated and often carry higher rates too, so speak with an adviser that can confirm the individual rates and costs for your situation.
Second charge mortgage rates
Mortgage rates can vary depending on the type of mortgage, the term of the mortgage, and the interest rate. However, second charge mortgage rates are usually higher than first charge mortgage rates.
Should I take advice before taking second charge mortgages?
Are you looking to get second charge mortgages? We would recommend speaking to someone that can explore all of your options and help you make the best decision for your needs I NEED ADVICE can put you in touch with an adviser that will look at your options for you. Please complete the contact box to arrange this.
Advisers that are giving advise on regulated second charge mortgages should be on the FCA register.
Conclusion
Second charge mortgages can be a great option when you’re looking to borrow money against your property, but it may not always the best choice. If you’re thinking about taking out a second charge mortgage, it’s important to get professional advice first to make sure it’s the right choice for you.
If you’re interested in obtaining a second charge mortgage, I NEED ADVICE can put you in touch with a qualified adviser. They’ll ask about your situation and make sure that you understand the process and the fees involved before going ahead.
They are experienced, which can boost your chances of being approved.
