Second Charge Loans

Key Takeaways

• A Second Charge Loan or Mortgage might allow you to raise finance if you have previously been declined a Remortgage
• A 'Second Charge' refers to the order of priority in the event of repossession.
• Second Charge Loans offer greater flexibility than alternative Mortgage options
• Second Charge Loans can be expensive, depending on your circumstances, a further advance may be a better solution
• Seeking advice is a good idea to understand your best borrowing options

What is a Second Charge Mortgage?

A Second Charge Mortgage is another term for a secured loan. It runs alongside a mortgage but is not provided by the same lender. The second charge refers to the order of priority of repayment in the event of repossession or default.

Second Charge Loans can also be known as Secured Loans or Second Charge Mortgages. 

If you take a second-charge loan, your existing mortgage terms can remain unchanged. This loan is known as a 'Second' charge because of the order of priority of repayment.

In the event of a borrower being unable to pay their debts, and the property was repossessed and sold to settle these, the first charge lender will be repaid first. Any subsequent (second) lenders next. Finally, if there are any funds left, after the sale and repayment of debts, then the homeowner will receive them.

You must notify your mortgage provider if you intend to raise a second charge.

Second Charge Mortgages are not limited to residential mortgages. It is also possible to raise a second charge on a Buy to Let property, including Interest Only options.

What Is A Charge?

A charge on a property, in a legal and financial context, refers to a financial interest or claim that one party has on the property or assets of another party. Charges are typically used to secure a debt or financial obligation, providing a level of protection or collateral for the party that is owed money. 

Are Second Charge mortgages expensive?

Second-charge mortgages are expensive compared to standard mortgages. This reflects the additional risk of being the second lender in order of repayment.

Conveyancing for Second Charge Mortgages

If you opt for a second charge Mortgage, there would also be conveyancing work to complete. This legal work puts the details of the Charge onto the land registry. Once you have repaid your second Charge loan, you will need to do further legal work to remove this Charge.

Eligibility for Second Charge Mortgages

The assessment of second-charge loans differs from mortgages. Eligibility for Second Charge loans vs further advances can differ.

If you have been declined a further advance with your existing lender, you may still be eligible for a second charge loan.

When is a Second Charge required?

If you are looking to borrow money, you may look into a Further Advance, Loan, or Remortgage. If these methods are not suitable, you may look for a Second Charge Loan.

Second Charge Loans can be appealing due to their flexibility and different assessment methods. Second Charge loans perhaps provide a better solution for borrowing than a conventional remortgage in this respect.

You may find that you are eligible for a Second Charge Mortgage when you have previously been declined for other methods.

How do Second Charge Mortgages differ from conventional Mortgages?

• A Second Charge Loan does not follow the same Mortgage affordability checks which may have prevented you from proceeding before. As these checks are more relaxed, the loan is considered higher risk and comes with a higher interest rate 
• If you need to raise finance and cannot remortgage because you are still in your fixed term you can borrow a second charge loan without paying any early repayment charges
• You are able to borrow up to a higher equity than a Mortgage
• You can repay your second charge loan without early repayment charges
• You are able to overpay when you like
• Lending into retirement is more acceptable
• There is no minimum income requirement
• Second Charge Loans can be on an Interest Only basis
• Less verification for self-employed individuals

How to arrange a Second Charge Loan?

If you have decided to proceed with a second charge loan, it is a good idea to speak to a Mortgage adviser.

A Mortgage adviser will be able to assist with your application for a Second Charge Mortgage, checking the best options across their panel of lenders.

By speaking with a Mortgage adviser, they will also make an appropriate recommendation on whether a Second Charge Loan is the right option for you. When exploring all of your options you may find that a Further Advance or Remortgage is possible and a more appropriate option for you.