Second Charge Mortgage and Bad Credit

Navigating the mortgage landscape with adverse credit can be challenging. However, a second charge mortgage offers a potential solution, providing a viable financing option for those with less-than-ideal credit scores. This page explores the benefits of second charge mortgages for individuals facing credit difficulties.

Understanding Second Charge Mortgages and Bad Credit

A second charge mortgage is a secured loan taken out against the existing equity in your property, ranking behind your primary mortgage. It can be an attractive option for those who might not qualify for traditional refinancing due to their credit history.

Can You Get a Second Charge Mortgage with Bad Credit?

A second charge mortgage can be beneficial for those with adverse credit because it provides an opportunity to access funds without needing to refinance the primary mortgage, which might be difficult and expensive with a poor credit history.

This type of loan can help individuals consolidate high interest debt, make home improvements, or cover other significant expenses, potentially improving their overall financial situation. Additionally, second charge mortgages often have more flexible lending criteria than remortgages and can be structured to accommodate borrowers with less-than-perfect credit, offering a viable financial solution when other options may not be available.

Why Consider a Second Charge Mortgage When You Have Bad Credit?

It Can Be a Way to Access Financing

  • Traditional first charge lenders can reject remortgage applications due to adverse credit ratings. A second charge mortgage provides an alternative route to funds, using your home equity as security
  • Lenders may reject a remortgage for several reasons, such as poor credit history, insufficient income, high debt-to-income ratio, or lack of adequate down payment. Other factors leading to rejection include when the property itself does not meet the lender's criteria or if the borrower has an unstable employment history
  • In contrast, a second charge mortgage might be more successful because it often has more flexible lending criteria compared to first charge mortgages, making it an option for borrowers who might not qualify for a new first charge

It Can Be a Cheaper Option if You Have Bad Credit

  • While second charge rates are typically higher than first charge rates, refinancing your entire mortgage when you have bad credit can be challenging and expensive as you’ll have a limited pool of products to choose from
  • A second charge mortgage can work out cheaper than remortgaging when you have bad credit as a smaller proportion of your total borrowing will be on a higher rate and your existing mortgage will stay in place. Whereas, if you chose to remortgage with bad credit, your total borrowing will likely be moved onto a higher rate
  • Second charge mortgage rates can also be more competitive than unsecured loans, especially for those with poor credit

You Can Avoid High Penalties on Existing Mortgages

  • Refinancing your first mortgage might not be an option due to high exit fees or loss of a favourable interest rate due to bad credit
  • A second charge allows you to release equity and borrow more without altering your existing mortgage terms

It Can Improve Your Credit Score

  • Successfully managing and repaying a second charge mortgage can help rebuild your credit profile over time
  • This means that when it does come time to remortgage, you’ll be able to secure a lower rate overall

It Can Be a Way to Consolidate Debt

  • One way in which you can use a second charge is to consolidate debt
  • This may not be an option for everyone but for some adverse credit borrowers, a second charge can help them pay off unsecured loans with higher interest rates or approaching deadlines
  • These various debts can be consolidated into one second charge loan on the property that has a more manageable repayment plan over a longer period of time

Benefits of Second Charge Mortgages for Adverse Credit Applicants

  • Tailored lending solutions: lenders specializing in second charge mortgages often provide more flexible criteria tailored to the needs of adverse credit borrowers
  • Debt consolidation: you may be able to consolidate high interest debts into a single, more manageable loan with potentially lower monthly payments
  • Raising funds for urgent needs: second charge mortgages are ideal for covering significant expenses like home repairs, medical bills, or other urgent needs without the strict requirements of unsecured loans

Risks of Second Charge Mortgages for Bad Credit Applicants

  • Risk to your home: as with any secured loan, your home is at risk if you fail to keep up with payments
  • Overall cost: it's crucial to consider the total cost of borrowing, including interest rates and any additional fees. Your bad credit mortgage broker can help you do this

How to Apply for a Second Charge Mortgage with Bad Credit

  1. Assess your equity: determine how much equity you have in your home as this dictates how much you can potentially borrow. The amount of equity you have in your property is simply your home’s value minus your outstanding mortgage
  2. Review your financial situation: understand your current financial status and how a second charge mortgage fits into your budget and debt management strategy. Your mortgage broker can give you information on this and it’s a good idea to speak to a financial adviser
  3. Consult with specialists: speak with mortgage advisors like our team members who understand the complexities of adverse credit lending to find the best rates and terms available
  4. Compare offers: don’t settle for the first offer; compare multiple lenders who specialize in adverse credit to ensure you get the best possible deal. A second charge mortgage broker can do this for you and explain your options

How Long Does a Second Charge Mortgage Stay on Your Credit Report?

A second charge mortgage stays on your credit report for as long as the account remains open and active. Once the mortgage is paid off and closed, it will typically remain on your credit report for up to 6 years from the date of closure. During this time, it will show the account's status and payment history, which can impact your credit score positively or negatively depending on how well the payments were managed.

Maintaining timely payments on a second charge mortgage can help improve your credit score over time, while missed or late payments can have a detrimental effect. It is important to monitor your credit report regularly to ensure the information is accurate and to understand how your financial behaviours are influencing your credit health.

Get Expert Help

For those with adverse credit, a second charge mortgage can offer a lifeline for financial stability and an opportunity to improve your financial health. By leveraging the equity in your home, you can access necessary funds, consolidate debts, and potentially rebuild your credit score.

Our team specializes in helping individuals with adverse credit secure financing. Contact us at 0330 433 2927 to discuss your options and see how a second charge mortgage might work for you.