3rd Charge Secured Loans – What You Need to Know

If you’re thinking about a third charge secured loan, also called a third charge mortgage, you’re in the right place.

Each month, over 6,900 people visit our website seeking advice on secured loans. You’re not alone, and we understand your worries. 

In this easy guide, we’ll look at:

• What a secured loan is.
• The cost of a bad secured loan.
• How you can get a secured loan, even if you already have one.
• Important things to think about before taking a third charge loan.
• Other choices instead of a third charge secured loan.

A third charge secured loan is an extra loan that is linked to your house. It’s taken after a first and second charge mortgage. This can feel a bit risky, but we’re here to help you understand it better.

Let’s learn about third charge secured loans together.

Can you have more than two secured loans?

It’s possible to have more than two secured loans as long as the security in each secured loan credit agreement differs. 

You will never be able to use the same asset as security for more than one secured loan, keeping in mind that a mortgage can be secured against property. Another loan can be secured against equity within the same property. 

How many loans can you have at once?

No legal limit restricts the number of secured loans you can have at one time as long as different assets are used as security within each credit agreement. However, the more debt you have, the harder it will be to get approved for other loans.

Lenders assess your debt-to-income ratio to ensure that any loan they approve would be affordable to you. If you already have a secured loan, the repayments on that loan will be considered by the other lender, who may decide that another loan is unaffordable. From my experience, lenders will also assess your credit file before deciding. 

Can there be more than one charge on a property?

Yes, you have more than one charge on a property. 

The first charge will usually be a mortgage to buy the property. If you rent the property out, this is either a residential mortgage or a buy-to-let mortgage. You make monthly repayments on the mortgage to remain the homeowner and pay off the debt used to purchase the property. 

As payments are made, the amount of equity you have in the property will increase. Home equity can be calculated by subtracting the debt from the current property value. So, the smaller your debt – i.e. mortgage – becomes, the more equity you will have. The only time this may not be the case is if the property value declines. 

You can then use the available home equity to take out another secured loan, this time using the home equity as collateral within the credit agreement. When a mortgage already exists on the property, these new loans are known as a second charge.

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Can you take out a third loan?

It’s possible to get a third charge on a property, which would be a loan secured by home equity when two existing loans are also secured by the property or home equity. 

As I see it, getting a third charge against the same property can be difficult. It’s more likely if there is significant home equity in the property that isn’t already secured in other loan agreements. Moreover, multiple charges can be risky. If you miss payments, you could lose your home. Not to mention, additional interest can add up if you continue to miss payments and don’t pay them back.

Interest rates

The interest rates for third – and second – charge loans are often higher than for first-charge loans. Furthermore, the interest rates for a third charge loan are usually higher than a second charge loan because the second charge takes priority. Third charge loan interest rates are often high due to the increased risk.

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How many charges can you have?

There are no legal restrictions on the number of charges you can have on the same property. However, lender criteria will get stricter the more secured loans you try to take out against the property at once. 

It’s not impossible, though. Someone could own a £500,000 property with no existing mortgage and multiple home equity loans for smaller amounts against their equity.

Things to consider

As mentioned, it can be difficult to get a third charge loan because lender criteria becomes stricter with each loan you try to take out against your property.

Before taking a third charge, ensure you have the perfect exit strategy. This will help you look less risky to lenders. A few things to consider include the property market predictions, the current economic climate, future financial stability, and the impact taking the charge out will have on your credit file.