Yes, you can take out a second charge mortgage for home improvements or renovations.
A second charge mortgage, also known as a secured loan, can be a useful way to raise funds if your current lender will not let you borrow more, or if you do not want to remortgage and lose an existing low rate on your main mortgage.
Whether it is the right option will depend on your wider financial circumstances, your current mortgage and what you are trying to achieve.
What Is a Second Charge Mortgage?
A second charge mortgage is a loan secured against your home in addition to your main mortgage.
This means you would have two loans secured on the property at the same time. Your original mortgage remains the first charge, which means it takes priority over the second charge mortgage.
Because this is a form of secured borrowing, lenders will still assess affordability carefully and apply underwriting checks before approving the loan.
When Might a Second Charge Mortgage Be Better Than Remortgaging?
A second charge mortgage can be worth considering where remortgaging is not the best fit.
For example, your current lender may refuse a further advance, or the cost of leaving your existing mortgage deal could be too high because of early repayment charges. In other cases, you may simply want to keep hold of a favourable interest rate on your main mortgage rather than replace it.
This is why it is important to look at the full picture before deciding whether a second charge mortgage or a remortgage is the better route.
How Much Can You Borrow with a Second Charge Mortgage?
The amount you may be able to borrow will depend on a number of factors.
Lenders will usually look at the equity in your property, your income, your credit history and your overall affordability. Loan sizes can vary significantly, depending on the lender and the strength of the case.
So while second charge mortgages can be used for anything from smaller renovation projects to more substantial works, the amount available will always come down to your individual circumstances.
What Should You Consider Before Taking Out a Second Charge Mortgage?
Before going ahead, it is worth thinking through the main costs, risks and practical points involved.
Interest Rates and Monthly Costs
Interest rates on second charge mortgages are often higher than those on first charge mortgages because the lender is taking more risk.
That does not automatically mean they are poor value. In some cases, keeping a low rate on your existing mortgage and taking a second charge on top can work out better than remortgaging the whole balance. But the numbers need to be checked carefully.
Repayment Terms
Second charge mortgages often come with repayment terms ranging from a few years to much longer periods, depending on the lender and the purpose of the loan.
You may be able to choose between fixed and variable rates, depending on what is available and what suits your budget.
Risks of Secured Borrowing
A second charge mortgage is secured against your home, so it is important to understand the risk.
If you do not keep up with repayments, your home could be at risk. That is why affordability matters just as much here as it does with a main mortgage.
Legal Process and Timescales
Like a standard mortgage, a second charge mortgage involves an application and legal process.
This can include credit checks, document checks and, in some cases, a valuation. Timescales can vary, but straightforward cases can often move more quickly than a full remortgage.
Speak to John Charcol About Second Charge Mortgages
If you are thinking about using a second mortgage for renovations, the key is working out whether it is the most suitable and cost-effective option for your circumstances.
At John Charcol, we can review your financial position, compare the alternatives and help you decide whether a second charge mortgage or a remortgage is more appropriate.
Please call 023 8235 2300 or enquire now for more information on second charge mortgages.
