What is a second charge mortgage? Why are they growing in popularity? When are second charge mortgages more cost-effective than a personal loan, remortgage or further advance?
These are just some of the questions which we are regularly asked. Within this short guide, we aim to address the reasons why a growing number of customers are taking out a second charge mortgage when they need to borrow additional funds.
What are second charge mortgages?
A second charge mortgage (previously known as a secured loan) is very simply a second loan which is secured against your property when you already have an existing mortgage in place. Traditionally, second charge mortgages were seen as an expensive last chance saloon for customers looking to consolidate large debts. However, in recent years an increasing number of mortgage lenders have tightened their criteria and refused to allow people to borrow more through remortgaging or a further advance. The second charge lenders have spotted an opportunity to better serve these customers by offering to lend them the funds they need at much lower rates than ever seen before.
In April 2016 the Financial Conduct Authority became the regulator over all second charge mortgages, this has resulted in stricter governing over the industry as a whole. The FCA now recommends that Mortgage Advisers should always consider a second charge mortgage when a customer approaches them for a remortgage because the products have become so competitive.
What can funds from a second charge mortgage be used for?
The loan can be used for any legal purpose including:
- Home improvements
- Debt consolidation
- Large purchase e.g. new car, school fees or wedding
- Business purposes
- Tax bill
- A deposit for the purchase of a buy to let property
When to consider a second charge mortgage
Here are a few examples of when a second charge may be the best option for you:
- You have applied for a further advance through your current lender but have been declined
- You have looked at remortgaging but your current mortgage includes expensive early repayment charges
- You do not want to remortgage because you currently have a really low-interest rate or an interest only mortgage which you do not want to lose
- You have accumulated some debt since taking out your current mortgage
- If you need fast access to funds – second charge mortgages can complete within as little as two weeks whereas a remortgage application can take much longer
