Second Charge Mortgages

A Second Charge Mortgage is an additional mortgage on top of your existing mortgage.

Unlike a standard remortgage where you replace your current mortgage for a different one (with the new mortgage paying off the old) a Second Charge Mortgage is paid alongside your current mortgage.  As such you will make two mortgage payments and have two outstanding mortgages.

The “Second Charge” part of the name refers to the fact that it is the second debt which is lent against (“charged against”) your property.  Your original mortgage is the “First Charge . 

You need to be a homeowner already to get a Second Charge Mortgage, though you don’t need to live in the property. It is usually used to free up the equity in your home.

Only homeowners can take out second charge mortgages, but you don’t have to live in the property to apply.  You will need to have sufficient equity in your property.

There is no need for a deposit but lenders will need to assess your ability to make repayments.  

You will likely also need to get permission from your existing mortgage lender, as mortgage lenders tend to have conditions in the mortgage contract forbidding additional lending being made against the property without their permission

However, most lenders are happy to consider granting permission for a second mortgage, as they fear that a refusal will lead to a remortgage and loss of the original loan.  This is where a mortgage broker can add value to the process by helping to gain the permission of the original lender.

Second Charge Mortgages are often used to raise extra money for a specific reason. These could include major repairs, home extensions or personal costs. Second Charge Mortgages are an alternative way of raising this money to either extending your existing mortgage (a “Further Advance”), remortgaging to a different, larger basic mortgage, or taking our unsecured lending (such as a credit card or personal loan).

 As mortgage applications have become tougher in recent years, Further Advances and remortgaging can be difficult for those who have become self-employed or have variable income through a small business. Second Charge Mortgages are often used instead of remortgaging if your credit rating has dropped meaning you could face higher interest rates on your remortgaged loan. They are also used when the early payment fee is very high on your current mortgage, making remortgaging costly. Like basic mortgages, your property is at risk if you don’t keep up the payments.

A second charge mortgage will almost always be more expensive than taking out an equivalent first charge mortgage (a “regular” home owners mortgage).  However, with mortgage rates constantly changing a new second charge mortgage may be less expensive than an existing first charge mortgage, as rates may have fallen since the original mortgage was taken out.