Pros and Cons of Second Charge Mortgage Lending
The primary advantage of a second charge mortgage is that you can access your equity without needing to remortgage, potentially sacrificing a competitive interest rate. Instead, the second charge mortgage is a separate, standalone loan.
However, there are downsides to consider before you proceed with a second charge mortgage application:
- Your home is at risk if you don’t keep up with your second charge mortgage payments, just as it would be if you couldn't repay your original mortgage. Lenders use the property as security and, in the worst-case scenarios, can repossess it if you have defaulted on your second charge mortgage.
- Interest rates on a second charge mortgage are higher because of the risk profile linked to this type of lending, as we've explained above.
- Mortgage lenders will apply strict criteria and will not offer a second charge mortgage if they have any reason to believe you will not be able to manage the repayment costs of two mortgages.
Our experienced second charge mortgage team can talk through all of these factors in more detail if you need guidance about whether or not to apply for a second charge mortgage or if you are comparing second charge mortgage lending against another product.
Applying for a Second Charge Mortgage
The good news is that the application process for a second charge mortgage is much like applying for your original home loan. You could possibly apply to banks, financial providers and specialist lenders. However, the best rates and most flexible second charge mortgage criteria are normally available from niche lenders rather than mainstream banks.
You can apply for a second charge mortgage either with the same lender as your first charge mortgage or apply to an entirely different provider – this may be beneficial if the first lender’s policies mean they are less likely to offer you a second charge mortgage.
It is essential you consult a second charge mortgage broker to compare all the various second charge mortgage lending products because there are numerous deals, repayment terms, charging structures and interest rates.
While some second charge mortgage providers will accept online applications, many specialists deal only with approved brokers within their network. In this scenario, we can submit your second charge mortgage application on your behalf and negotiate with the lender to secure the best possible offer.
Alongside the usual documents, ID and income history, a second charge mortgage lender will need to review the property valuation and assess the first mortgage to ensure you have adequate equity in the property to balance against the amount you wish to borrow in your second charge mortgage.
Applying for a Second Charge Mortgage to buy a Second Home
One of the potential reasons to choose a second charge mortgage is to leverage your equity to raise a deposit or even the full balance required to buy another home. Normally, a second charge mortgage would not be necessary, but this can be a solution where the new property is unmortgageable.
For example, a landlord might wish to invest in a renovation project to buy a property that does not have a working bathroom and is therefore ineligible for standard mortgage lending. In this second charge mortgage brokers example, they could take out a second charge mortgage on an existing property or their home and use the funds to purchase the additional home.
It is also common for homeowners to apply for a second charge mortgage to finance a holiday home.
