Second charge mortgages

Journalist: Anna Sagar, Mortgage Solutions / Specialist Lending Solutions

ended 03. May 2022

Looking to speak to mortgage brokers about second charge mortgages. 

  1. Are you seeing a rise in this kind of business? Why is that the case?
  2. What are borrowers using it for and what would you recommend it for? 
  3. Are there many lenders in the space and do you expect more to offer this kind of business?
  4. Are there any criteria points or terms and conditions borrowers should be aware of? 

3 responses from the Newspage community

"Second charge mortgages is a growing area. It's mainly used when people have high penalties to remortgage and either want to fund home improvements or debt consolidation. However, caveat emptor, second charges come with big fees, higher rates and not all lenders are happy about them. If they can be avoided they should be. If it's a necessity then ensure you take professional advice before signing on the dotted line."
Star Quote
"The rise in popularity of longer term fixed rates over the past few years, coupled with clients looking to tidy up their finances because of the rising cost of living, has meant that more clients are looking to second charges to do this. Lenders whose further advance products, criteria or processes are not working for clients have also meant that more are coming back asking what how could other lenders help them. Debt consolidation and home improvements are the main uses of this funding, although we did have an enquiry from a musician looking to fund a cello. The market has enough lenders for its size, however if the growth we are seeing continues then some 1st charge lenders are bound to look at this market with its margins and lending opportunity as somewhere to deliver growth. Clients and introducers need to talk to experts in this field to package a case quickly and fund in a timely way. Seconds are close to firsts but have enough differences to mean that using a packager will smooth the path for both broker and client."
"A second charge mortgage is an additional loan on a property, with a different lender to your main first charge mortgage. It will generally be at a higher rate than a standard mortgage and have higher set-up fees. They are, however, a vitally important tool in the broker's toolkit. When a customer looks to borrow some additional money on their existing property there are a number of different ways to do it: a full remortgage to a new lender, a further advance (additional borrowing) from the existing lender, or a second charge loan. Generally, a broker will look to remortgage a client, or do a further advance to raise the extra funds required, as these are the lowest cost options for the client. But, if the client is tied into their current mortgage and the lender won't agree to the additional borrowing, then a second charge loan becomes the best way to meet the client's needs. With rising interest rates now a factor, it may also be that the clients' existing mortgage deal is so good compared to the rates now available that a full remortgage becomes unattractive. In this case, keeping the existing deal and taking the extra money on a second charge, despite the higher rate and fees, actually works out more cost-effective overall in situations where taking the extra borrowing from the current first charge lender is not possible for some reason."