What Is a Second Charge Mortgage?
A second charge mortgage, also referred to as a “secured loan” or “second mortgage” allows a person to borrow money on a property which already has an existing mortgage on it. This existing mortgage is called a first charge. The second mortgage is separate from the first mortgage because it’s a completely different product with a new mortgage lender. The rate, period of time and overall mortgage term may be different.
You need your existing lender’s permission in order to secure a second charge on your property.
The second charge mortgage rates available to you are likely to be higher than on your first mortgage, as the second lender will be taking on more risk. For example, if you were unable to keep up your mortgage payments and your property was repossessed, the first charge lender would be paid before the second charge lender. This means that if there wasn’t enough equity in the property to pay back both lenders, the second mortgage lender could lose money.
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Why Should You Get a Second Mortgage?
Expensive Remortgaging Rates
If you have a poor credit rating, the remortgage deals available to you could come with higher interest rates and you’d miss out on more competitive deals. Taking out a second charge can potentially be cheaper as it will allow you to keep your first rate in place and pay interest at a higher rate only on the additional borrowing. If you already have an idea of the remortgage rates available to you, try our mortgage comparison calculator to see whether remortgaging is a viable option.
Early Repayment Charge
Some mortgages have high ERCs (early repayment charges), so it could be cheaper to take out a second charge mortgage instead of remortgaging.
As a self-employed person, your first charge lender may not allow you to borrow more on a further advance. A second charge presents an opportunity for additional borrowing that can be used for things like tax bills.
Who Could Benefit from a Second Charge Mortgage?
You might find a second charge suitable if you:
- Want to avoid remortgaging because you’re still on your introductory deal and your mortgage has ERCs (early repayment charges)
- Have a great deal on your current mortgage that you don’t want to lose by remortgaging
- Don’t want to extend the term of your current mortgage
- Aren’t able to get a further advance from your existing lender
- Have found that your credit rating has gone down since taking out your first mortgage
- Are struggling to obtain some form of unsecured borrowing
Borrowing More for Home Improvements?
Want to borrow more on your property for a renovation or extension? Find out how much value an extension could add to your home with our house extension cost calculator.
Can You Get a Second Charge Mortgage on Your Home?
Whether you can get a second charge on your home will depend on your income, how much equity you have in your property and whether your existing lender will allow it. You may also need to discuss with your broker whether your property requires a non-standard construction mortgage.
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Do You Need a Mortgage Broker for a Second Charge Mortgage?
You need a mortgage broker to get a second charge on your property. This is because they're specialist mortgages that require bespoke advice and involve specialist lenders.
Using an independent mortgage broker like John Charcol gives you access to expertise and industry knowledge that you need in order to find a suitable second charge deal.
How Can John Charcol Help with Second Charge Mortgages?
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Second Charge Mortgage Process
1. First Call
When you contact us, we’ll arrange an appointment between you and one of our advisers – this can be over the phone or face to face. Your adviser will ask you some questions and, once they have all the right information, they’ll go away and find you the best second charge option for your current and future needs. They’ll then organise a follow up appointment to tell you about their recommendation.
2. Decision in Principle
After your adviser has presented you with their recommendation and you’re happy to proceed, they’ll work on securing your DIP (Decision in Principle). Your DIP is a promise from the lender that they’ll loan you the money on the condition that the information you’ve provided is correct and subject to a valuation on the property.
3. Pre-Application and Submission
Once the lender secures your DIP, we’ll start to prepare your mortgage application. We’ll send you a pack that explains all the different documents the lender needs. You’ll be assigned a client relationship manager who’ll go through your documents and get everything ready for submission. Your adviser will then submit your full mortgage application.
4. Lender Underwriting and Valuation
The lender carries out a process called “underwriting” where they check all the information and documents you’ve provided in your application. They’ll also instruct a valuation for their purposes on the property to make sure there are no significant problems with it. Sometimes a lender will only instruct a desktop valuation for a second charge – rather than a physical valuation – as your property would have likely had a valuation and internal inspection when you took out your first mortgage.
5. Mortgage Offer
Following a successful underwriting process and valuation, the lender will accept your application and send you a mortgage offer. They’ll also send a copy to us.
Finally, after you’ve signed all the paperwork, your lender will arrange a date with you to drawdown the new money. This is called completion.
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Second Charge FAQs
What Is a Second Charge on a Mortgage?
A second charge is a second mortgage you take out on a property that already has a mortgage on it. Second charges are a way to release equity from your property and access money without remortgaging away from your current lender.
How Long Does a Second Mortgage Take?
Getting a second mortgage typically takes 4 – 6 weeks, assuming there are no issues with your application.
Are Second Mortgage Rates More Expensive?
Second charges are usually a little more expensive than first charges because they’re a riskier form of lending for providers. If you were unable to keep up both of your mortgage payments and your property had to be repossessed, the lender of your first mortgage would come before the second lender when it came to receiving money from the sale of the property.
Does a Second Mortgage Hurt Your Credit?
Getting a second mortgage on your property won’t hurt your credit score, as long as you keep up your monthly payments on both your original mortgage and your second mortgage.
Can a Mortgage Company Refuse a Second Charge?
Not all first charge mortgage lenders will permit a second charge on your property because of the additional risk they incur. If your lender does not agree for you to take a second charge out on your property, you may be able to consider an equitable charge. An equitable charge is where a lender is able to use your property as security but they don't require the first charge lender's permission. Talk to your broker to see if this is an alternative option for you.
Will Second Charge Lenders Ask Me for a Deposit?
Like with a remortgage, you don’t need a cash deposit for a second charge. The lender simply lets you release equity that you already own in your property for the loan.
What Happens if I Move House?
You’ll need to clear the second charge mortgage when you move and sell your house which means it’s important to check whether you’ll be liable for any ERCs (early repayment charges).
Remortgaging means to switch to a new deal with a different lender but stay in the same property. Learn about remortgage costs, valuations and see our advice.
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On this page you’ll find our detailed mortgage terminology glossary. There’s a lot of jargon out there but we’re here to make it easy.