Learn How to Put a Second Charge on Property

Navigating the process of obtaining a second charge mortgage can be complex, especially without proper guidance. This guide outlines the process for putting a second charge mortgage on a property, ensuring that you, as a potential borrower, are well-informed and prepared for every step of the journey.

Second Charge Mortgage Meaning

A second charge mortgage is a secured loan put on a property with an existing mortgage. A second charge is taken out with a different lender from your existing one and operates as a completely separate product with its own rate and terms. It is called a “second charge” as the second charge lender has second priority to receive payment after the first charge lender in the event of repossession.

How to Put a Second Charge on a Property – the Process

Putting a second charge on a property involves several steps that ensure the borrower and lender have a clear understanding of the financial arrangement and that the property can adequately secure the additional loan.

Here’s a step-by-step guide showing you how to put a second charge on a property, including the mortgage process.

1. Evaluate Your Financial Situation

  • Assess your current income, expenses, debts and the amount of equity in your property. Your existing lender will be able to tell you how much equity you have in your property
  • Ensure you have a clear understanding of how much you need to borrow and why (e.g. home improvements, debt consolidation)

2. Consult a Mortgage Broker Who’ll Carry Out a Financial Assessment

  • Consider consulting with a mortgage broker who can help you find suitable options based on your financial profile
  • During your first appointment with a mortgage broker you’ll have an initial consultation where you’ll discuss your financial needs, objectives and why you’re considering putting a second charge on your property
  • Your adviser will also assess your current financial situation, including income, debts, existing mortgage and equity in your property
  • Your broker will use this information to determine how much you can borrow and if a second charge mortgage is a suitable option for you, weighing up the benefits and risks. They will explore alternative financing solutions if necessary
  • If you proceed with the second charge, then the broker will go away and do some research on the lenders to find you the best deal

3. Prepare Documentation

  • While your mortgage broker is researching your second charge deal, you will gather necessary documents such as proof of income (payslips, tax returns), bank statements, details of your current mortgage and identification documents
  • Some lenders may require proof of the purpose of the loan (e.g. quotes for home improvements)
  • Don’t worry – your second charge mortgage adviser will tell you what information you need before you go about collecting your documents

4. Lender Selection and Valuation

  • Your broker will identify potential lenders who offer second charge mortgages with terms that fit your financial situation. They will choose the most suitable lender based on interest rates, loan terms, fees and overall cost
  • Once they’ve found the best deal, the adviser will present you with their findings
  • If you’re happy to proceed, it will be now that you’ll go about arranging a valuation on the property. Your broker will advise you on what valuation is required based on the lender selected
  • The valuation is carried out to determine exactly how much equity is available in your home for securing a second charge mortgage. This will be used to give the lender a clear picture of possible loan amounts and terms
  • The cost of the valuation may be covered by you or included in the loan fees

5. Application Preparation and Submission

  • Here is where the broker will put together your mortgage application using all the information and documentation you’ve provided them with
  • The adviser will then submit the application on your behalf. It is at initial application that the lender will carry out a credit check on you
  • They’ll perform a credit check to evaluate your creditworthiness and determine the risk involved in lending to you. It’s also at this stage that the lender will start their conveyancing process (the legals and solicitor stuff)

6. Processing and Underwriting

  • Once you’ve submitted your mortgage application and the lender carries out their credit check, they’ll start processing and underwriting your application to assess the risk of lending
  • A big part of the underwriting process is the lender’s affordability assessment which is basically a way for them to assess you can comfortably manage the repayments on the second charge mortgage in addition to your existing financial commitments
  • The affordability test usually involves verifying the information you’ve provided them with and stress testing your finances against potential interest rate increases
  • At this stage they’ll also look at the information found during the valuation
  • If they require any further information or have any queries, they will speak with the broker who will manage this part of the process for you, ensuring your application continues to progress as smoothly as possible

7. Offer, Agreement and Finalising the Loan

  • Finally, based on their findings, the lender will approve or reject your application. If approved, you’ll receive a loan offer detailing the terms of the second charge mortgage, including the loan amount, interest rate, repayment schedule, and any fees
  • Sometimes, if you don’t meet the criteria for the specific product you’ve applied for, the lender may still be able to offer you a mortgage and will simply come back to you with different terms. You’ll be able to discuss these with your broker
  • Your broker will review your offer carefully with you to ensure you understand all terms and conditions
  • Here is when you can also seek legal advice to overlook the offer in order to make sure you understand the legal implications and responsibilities of taking out a second charge mortgage
  • Assuming you’re happy to continue, you’ll accept the loan offer and complete any final requirements to secure the funding, such as signing legal documents and paperwork

8. Funds Disbursement

  • Once all legal and administrative steps are completed, the lender will release the funds to you and register the second charge against your property with the land registry or relevant authority
  • You will now be free to use the funds for the specified purpose - e.g. home improvements, debt consolidation, etc.

9. Repayment

  • Your mortgage will be active and you all begin making regular payments according to the agreed schedule
  • Note that your first and second charge mortgages likely won’t be on the same schedule as they’re separate products with different lenders. Therefore, it’s important you know your payment plan and can ensure you stay on top of both your first mortgage and the second charge mortgage payments to avoid the risk of repossession

How Long Does a Second Charge Take?

Getting a second charge mortgage on a property can often take around 6 weeks.

Here’s a breakdown:

  • Week 1 Research lenders, gather documentation and submit initial application
  • Week 2 – 3 - Property valuation and affordability assessment conducted by lender
  • Week 4 Lender reviews application, conducts credit check, instructs conveyancer and issues offer
  • Week 5 Review and sign loan agreement and legal documents
  • Week 6 Registration of second charge and disbursement of funds

Note that this is a general guideline and how long it takes to get a second charge mortgage on your property will ultimately depend on how straightforward the application is and the lender’s caseload.

To easiest way to ensure a quick and smooth process is to consult a mortgage broker like John Charcol. Your adviser will assess your situation, explain your options, tell you what documents to gather, find you the best deal, package your application, liaise with the lender and more.

Get in touch on 0330 433 2927 to start the process of putting a second charge on your property.