Can I Take Out a Second Mortgage on My House?

Considering getting a second mortgage on your house? A second charge mortgage could be a viable solution. This type of secured loan allows homeowners to borrow against the equity in their residential property without affecting their primary mortgage.

Learn more about what getting a second mortgage on your property means and how a second charge can help meet your personal needs, from renovations to consolidating debt.

Second Mortgage on House Meaning

A second charge mortgage is a secured loan taken against the equity of your residential property, sitting behind your primary (or first charge) mortgage in priority. This means that in the event repossession, the first charge lender will be repaid first and the second charge lender will be repaid afterwards, using the remaining equity left over after the first charge is settled.

A second mortgage offers a way to access funds by leveraging the equity you've built up in your home, without disrupting your existing mortgage. This is possible as the second mortgage operates alongside but separate from the first mortgage. It’s with a different lender, has its own rate and its own terms.

Whether you can obtain a second charge mortgage depends primarily on 2 key factors: your affordability and the amount of equity you have in your property.

Affordability for Second Mortgage on the Same House

Lenders will closely examine your financial situation to determine whether you can afford the additional loan repayments on top of your existing mortgage obligations.

Key aspects of affordability assessment include:

  • Income: your total income, including salary, bonuses and other sources of income will be evaluated to ensure you have sufficient funds to cover the new loan payments
  • Expenditure: lenders will review your monthly outgoings, such as existing debt repayments, household bills and living expenses to understand your financial commitments
  • Credit history: a good credit history demonstrates your reliability in repaying debts, which can enhance your chances of securing a second charge mortgage and a more competitive rate
  • Debt-to-income ratio: this ratio compares your total monthly debt payments to your monthly income. A lower ratio indicates a healthier financial position and greater affordability for additional borrowing

Equity in Your Property and the Impact on Second Charge Deals

Equity is the portion of your property that you own outright, without a charge secured on it. It’s calculated as the difference between your property's current market value and the outstanding balance on your first charge mortgage.

The amount of equity you have plays a crucial role in determining your eligibility for a second charge mortgage.

The second charge mortgage lender will consider the following:

  • Your home’s current market value: an up-to-date valuation of your property is required to assess the total available equity. You’ll have to pay for this but the lender will have certain requirements for the valuation – it may even be a simple desktop valuation
  • Your outstanding mortgage balance: the remaining balance on your first charge mortgage will be deducted from the market value to calculate your equity
  • The LTV (loan-to-value): lenders typically offer second charge mortgages up to a certain LTV ratio, which combines both the first and second charge mortgages. For example, if your property is valued at £300,000 and you have £150,000 remaining on your first mortgage, with a second charge lender offering a combined LTV of 85% (£255,000) you could potentially borrow up to £105,000 (£255,000 - £150,000) through a second charge mortgage

Obtaining a second charge mortgage depends on both your affordability and the amount of equity in your property. Lenders will assess your financial capability to manage additional loan payments on top of your existing mortgage payments and the equity available in your property to secure the loan. If you meet these criteria, a second charge mortgage can be a viable way to access additional funds without disrupting your existing first mortgage.

When to Consider Getting a Second Mortgage on Your House

  • You want to make home improvements and renovations: second mortgages are ideal for funding significant home upgrades or extensions that can increase your property's value
  • You want to consolidate debt: you can combine your debts into a single, manageable loan with potentially lower interest rates and monthly payments
  • You have major family expenses: a second charge is useful for covering major costs such as funding private education, significant family events, or medical bills
  • You want to invest in property: second charge deals can be used to raise funds for investing in additional property or refurbishments

Advantages of Taking Second Charge Mortgage Out on Your House

  • Flexibility: you can tailor the loan to suit your financial situation without disrupting your existing mortgage
  • Cost-effective: a second charge can potentially be cheaper than remortgaging if you have a low interest rate on your first mortgage that you want to keep
  • Loan amount: depending on your property's equity, you might access larger sums with a second charge than through personal loans or credit cards

Risks of Getting a Second Charge Mortgage on Your House

  • Additional debt: taking on another mortgage increases your overall debt burden and monthly financial commitments
  • Risk of foreclosure: as with any loan secured on your property, non-payment can lead to losing your home since it serves as collateral
  • Interest rates and fees: second charge mortgages often have higher interest rates than first mortgages and may come with significant fees

Can I Get a Second Mortgage on My House?

Yes, it is possible to get a second mortgage on your property, often referred to as a second charge mortgage. However, your individual eligibility depends on your affordability and the equity you have in your property. Essentially, your affordability and equity must meet the lender’s criteria for the kind of mortgage you want. Criteria vary from lender to lender so note that there are a variety of options depending on your situation.

How to Get a Second Mortgage on Your House

Here are the basic steps you can follow to get a second mortgage on your house.

  1. Assess your equity: determine how much equity you have in your home as this will affect the amount you can borrow
  2. Conduct a financial review: carefully evaluate your financial health and the affordability of taking on additional debt
  3. Seek professional advice: consult with a mortgage broker like John Charcol to understand the best options and implications for your specific circumstances
  4. Compare offers: research various lenders to find competitive rates and favourable terms. Your mortgage broker will help you do this

How to Maximise Your Chances of Getting a Good Second Charge Mortgage Deal

Securing a second charge mortgage can be a strategic way to access additional funds without altering your existing mortgage. However, obtaining approval, let alone a competitive deal, requires careful preparation and understanding of the key factors that lenders consider.

Here are some tips to maximise your chances of getting a competitive second charge mortgage.

Assess Your Financial Situation

  • Review your credit report: obtain a copy of your credit report and check for any errors or areas that need improvement. A good credit score enhances your chances of approval and may help secure better interest rates
  • Stabilise your income: ensure you have a steady and reliable income. Lenders look for consistent earnings to confirm your ability to manage additional loan repayments. If you have multiple income sources, document them clearly
  • Manage existing debt: try to reduce your current debt levels where possible. A lower debt-to-income ratio is preferred by lenders and demonstrates financial responsibility. It can also help you get more favourable mortgage terms

Maximize Your Property's Value

  • Get an accurate valuation: obtain a professional valuation of your property with an independent surveyor to determine its current market value. An up-to-date valuation can help maximize the amount of equity you can access
  • Consider home improvements: if feasible, make small improvements that could increase your property’s value, like sprucing up the garden or adding a fresh coat of paint to a worn room. Enhanced property value can positively affect your LTV, allowing you to borrow more

Prepare Necessary Documentation

  • Gather financial documents: collect all necessary documents, including proof of income (payslips, tax returns), bank statements and details of existing debts and expenses. Having these ready can streamline the application process
  • Prepare a budget: create a detailed budget that outlines your income, expenses and how you plan to use the funds from the second charge mortgage. This shows lenders that you have a clear financial plan

Choose the Right Lender

  • Research lenders: different lenders have varying criteria for second charge mortgages. Research and compare lenders to find those that align best with your financial situation and needs. A mortgage broker can do this for you
  • Consider specialist lenders: some lenders specialize in second charge mortgages and may offer more flexible terms or be more willing to work with borrowers who have unique circumstances. You’ll likely need a mortgage broker to access these lenders

Work with a Mortgage Broker

  • You’ll receive expert guidance: a mortgage broker can provide invaluable advice and guidance, helping you understand your options and navigate the application process. They can identify the best products and lenders suited to your needs
  • You’ll have access to exclusive deals: brokers often have access to exclusive deals and rates not available directly to the public, potentially saving you money over the life of the loan
  • It’ll streamline your application: brokers handle much of the paperwork and communication with lenders, making the application process smoother and less time-consuming for you

Maximising your chances of securing a second charge mortgage involves careful preparation and strategic planning. By assessing your financial situation, improving your property value, preparing necessary documentation, choosing the right lender and working with a knowledgeable mortgage broker, you can enhance your likelihood of approval and secure favourable terms. Whether you need funds for home improvements, debt consolidation, or other investments, taking these steps can help you achieve your financial goals.

Contact Us

Ready to get started? Our experts are here to help you navigate the second charge market and ensure you make the best decision for your financial future. Contact us at 0330 433 2927 for more details on getting a second mortgage on your home or to arrange a consultation.