Can You Have Two Mortgages on One Property?

Having Two Mortgages on One Property

Yes, it is possible to have two mortgages on one property, and this situation is commonly referred to as having a second mortgage or second charge. The second charge would be with a separate lender from your existing mortgage so you’d essentially have two lenders and two mortgages on one property.

When you have two mortgages on the same property, note that the terms and rates for the second mortgage will not be as favourable as the first. 

This is because your original mortgage would have arranged on the basis that the lender has the first charge registered against the property. This means that if you were to default on your payments and the property had to repossessed and sold, the lender on the original mortgage would have first call on the funds to repay the mortgage plus costs. The second charge lender would be next in line to receive payment.

Essentially, second charge mortgages run a greater risk that there will be insufficient funds left to repay their debt in full and this risk is reflected in higher rates and charges.

Is It Legal to Have 2 Mortgages?

Yes, it is perfectly legal to have 2 mortgages at once, whether they’re on separate properties or the same property.

Can I Have Two Different Mortgages on My Property at the Same Time?

In order to qualify for a second charge on your home, you would first need permission from your existing lender.

You’ll also need to meet the new lender’s affordability criteria and requirements. How big of a second mortgage you can take out on your property will depend on your situation, the lender’s criteria and how much equity you have built up in the property. The more equity you’ve already built up in your property, the more you’ll likely be able to raise with the second charge.

Is Having Two Mortgages on One House a Good Option?

There are a few scenarios in which people might want to consider having two mortgages at once on the same property:

• Second mortgage for home improvements: homeowners may take out a second mortgage to fund major renovations or improvements to their property. This is often done when the cost of the improvements exceeds the amount, they can borrow through the existing lender
• Buying a second property: some individuals may choose to take out a second mortgage on their primary residence to finance the purchase of a second home or investment property
• Refinancing: homeowners might opt for a second mortgage when refinancing their existing mortgage. This could be to access additional funds, consolidate debt, or secure a better interest rate on a portion of their loan

It's important to note that having two mortgages increases the financial responsibility and risk for the property owner. Each mortgage would have its own term, interest rate and repayment schedule, and defaulting on either mortgage could lead to serious consequences - including the risk of foreclosure.

Here are some key considerations that can help you decide if getting 2 mortgages at once on a single property is right for you:

1. Interest rates and terms: second charges typically have higher interest rates than first mortgages. Understand the terms, including the repayment period and any early repayment penalties
2. Equity in your home: ensure you have sufficient equity in your home to cover the second charge. Lenders usually require a certain level of equity to minimize their risk
3. Financial stability: assess your ability to make additional monthly payments. Consider your overall financial health and future income stability to avoid the risk of default
4. Purpose of the loan: clearly define the purpose of the second charge. Common uses include home improvements, debt consolidation, or large purchases. Ensure the reason justifies the additional debt
5. Lender's requirements: different lenders have varying criteria for approval. Check the lender’s requirements for income, credit score, and documentation
6. Impact on first mortgage: understand how the second charge affects your first mortgage. In case of default, the first mortgage lender has priority in repayment, which could complicate matters
7. Fees and charges: be aware of any additional fees associated with taking out a second charge, such as arrangement fees, legal fees, and valuation costs
8. Risk of repossession: defaulting on a second charge could lead to repossession of your home. Carefully consider this risk before proceeding
9. Alternatives: explore alternative financing options such as remortgaging, personal loans, or credit cards, which might offer better terms or lower interest rates
10. Advice: before pursuing a second mortgage, it's advisable to carefully consider your financial situation, consult with a mortgage broker such as John Charcol, who can help you thoroughly understand the terms and implications of having multiple mortgages on one property

As second charge mortgages are quite specialist, you’ll likely need to talk to a mortgage broker like John Charcol anyway. Call us on 0330 433 2927 to learn about your options.