A second charge also known as a “second mortgage” or “second charge mortgage” is a mortgage that is secured against a property which already has a mortgage on it. They are sometimes used to raise money if borrowers are unable or unwilling to remortgage or to get an unsecured personal loan. It uses the capital (equity) in your home based on the difference between the value of the property and the amount you owe on your first mortgage. The secured loan is then a second charge against the property. This means the lender of the secured loan has to wait until any debt is recovered by the first mortgage lender before they can then cover their outstanding debt. It is entirely separate from your original or “first” mortgage. It’s a completely different product with a new lender. This means that the rate, period of time you have that rate and the overall mortgage term may be different and you also need your existing lender’s permission in order to secure a second charge on your property. 

Key Points:

• If you have been considering a second charge mortgage, the first thing to do is to decide how much money you need and what you will be spending it on. You may be able to look at other ways of borrowing money with less risk attached.
• Second charge mortgages are more complex as they are a separate to your existing mortgage. You will need to keep up repayments on two different mortgages.
• The maximum second mortgage you can get depends on the amount of equity you’ve built up in your home.
• Only homeowners can take out second charge mortgages but you don’t have to live in the property to apply which means you can also use your BTL property.
• If your credit rating has gone down since taking out your first mortgage and you are struggling to obtain some form of unsecured borrowing then second charge mortgages might be an alternative as the loan is based on the available equity in that same property.
• You might benefit from taking out a second mortgage if you’ll face big early repayment charges or penalties for switching away from your current mortgage deal.
• Rates for second charge mortgages are usually higher compared to remortgaging rates.
• Could be an option for debt consolidation which allows you to combine each of your individual debts into a single loan, so you only have one payment to make each month, Although consolidating your debt might seem like a good idea but it might not be the best option for you so you need to consider it carefully.
• Second charge mortgages can be considered as a good way of releasing extra funds against your property, it should be noted that the property you are financing against will be at risk of repossession if you do not keep up with your repayments.
• You’ll have to pay off both mortgages in full if you move house which could leave you with very little deposit.
• Rates can be low, especially when compared to some unsecured personal loans and repayment periods can be longer, giving you more time to repay the loan.