Can I Get a Second Mortgage? Here Are The Rules

If you’ve been thinking about getting a second mortgage but are unsure of the rules, this article is for you.

We're here to help.

In this article, we’ll talk about:

• What a second charge mortgage is and how it works.
• The things you need to know about a bad second charge mortgage.
• The good and bad points of a second charge mortgage.
• How you can apply for a second charge mortgage.
• Ways to make your credit score better.

We know that getting a second mortgage can be confusing and a bit scary. You might be worried about how a second charge mortgage works, especially if your credit isn’t very good.

Don’t worry! We’re here to help you understand it all, and show you that even with bad credit, getting a second charge mortgage can be possible.

Can you get a second mortgage if you already have a mortgage?

If you already have a mortgage, it is possible to get a second mortgage. You could get a second charge mortgage, which is a second mortgage on a property that already has a first charge mortgage, i.e. a mortgage you used to buy the property. Or you might be able to get a second mortgage to buy another property (either a residential or buy-to-let mortgage). 

A second-charge mortgage adds secured borrowing alongside the first mortgage. The amount depends on property value, existing secured debt, combined loan-to-value and affordability; permitted use and repayment terms vary.

Your home is used as collateral. 

Second charge mortgages are usually shortened to just second mortgages, which creates confusion because people also use ‚Äúsecond mortgage‚Äù to refer to buying another property with a second first charge mortgage. 

To add to the confusion, some people use the money borrowed against home equity in a second charge mortgage to help buy another property, such as a holiday home. 

To summarise, you could:

1. Get a second mortgage to buy another home, which is a second first charge mortgage
2. Get a second-charge mortgage to borrow against available property value, subject to lender rules and affordability.
3. You might choose to use the second charge mortgage loan amount to help fund another home purchase

Getting a second mortgage in any situation is a big deal and should only be done after serious consideration. If you want to borrow with a second mortgage, only use a lender authorised and regulated by the Financial Conduct Authority (FCA). If the FCA does not regulate them, they are operating illegally and could be a scam. 

Can I get a second mortgage?

To get a second charge mortgage, you must be eligible to apply. The first thing you must have is enough home equity, as this is what your second mortgage will be borrowed against. 

Home equity is the value of your home without any attached debt. You can work it out by subtracting your first charge mortgage balance away from the current value of your home. For example, £220,000 (property value) minus £100,000 (remaining mortgage) gives you £120,000 home equity. If you have any other debts attached to your property, you’ll also need to subtract these amounts from your home’s value to work out the equity in your property. 

Taking out a second mortgage requires the lender to calculate your property’s equity amount accurately. You may need to pay a fee for them to complete an appraisal. You should not assume that the property is worth the same amount you paid, even if you only bought it in the last year or two. 

Minimum advances and maximum combined loan-to-value limits vary. Sufficient security and affordability are needed, and a loan-to-value limit does not eliminate the risk of future negative equity.

Even if you have the required home equity to get the loan amount you need, this doesn’t mean you will automatically be approved for credit secured against your home equity. You’ll be subject to affordability checks, meaning your income will be assessed against all existing debts. This includes personal loans and credit cards as well as your first mortgage. Your credit score will be checked to see how you have repaid lenders in the past. 

Use UK second-charge mortgage terminology when searching. Do not assume US-style HELOC products or terms are generally available here.

Getting a second mortgage in the UK

UK second-charge mortgages are offered by specialist lenders and accessed directly or through brokers where available. Check actual current products; searching for overseas HELOCs can produce unsuitable information.

You may have to speak with your local bank branch rather than rely on their website for second charge mortgage information.

Another option is to use the services of a credit broker or mortgage consultant. They could save you time by searching the market on your behalf, but their services come with upfront costs, commissions, or both. Always check mortgage terms before signing anything.

The benefits of a second charge mortgage

Choosing a second charge mortgage as a way to access credit can be beneficial. Because you are borrowing against home equity, you may be able to access a more significant loan amount this way than using a personal loan or credit card. 

Funds may be used for renovations or other permitted purposes. Improvements do not guarantee a rise in value, and debt consolidation can increase total costs or put previously unsecured debts against the home.

Another potential benefit of using a second charge mortgage is that you might get a lower interest rate than other options. Secured loans generally provide lower rates because the lender feels more comfortable when an asset is listed as collateral within the credit agreement. 

A nice benefit of using a second charge mortgage is that it can help you avoid an early repayment charge on the first mortgage compared to refinancing or remortgaging your first mortgage. However, other fees may be associated with a second charge loan that could wipe these savings out. 

The risks of a second charge mortgage

When you get a mortgage a second time on the same home, there are multiple risks. The main one is risking your family property. 

By securing further debt against your home, you are risking the property. If you don’t keep up with your agreed payments, the house may be repossessed, and the lender will sell your home. Once they sell your home, the money raised will be used to pay back the first charge mortgage lender and then the second charge lender. If anything remains, you will receive the money, but if there is a shortfall due to negative equity. You could land in serious debt, possibly requiring bankruptcy. 

One way of mitigating the risk of not being able to afford your mortgages is to never overborrow against your equity or seek alternative credit methods. If you feel uncomfortable using your family home as collateral, you may want to look at other secured options or consider unsecured credit, such as a personal loan. 

What is the purpose of remortgaging?

In simple terms, remortgaging is when you pay off an existing mortgage on your existing property with a new mortgage arrangement. This arrangement could be with your current lender or a new mortgage provider. People often remortgage their property if their current mortgage rate is coming to an end. However, they may also require a mortgage refinance if they’re after a better deal or if they want to borrow more money against their property.

Advantages and disadvantages of remortgaging

If your current mortgage arrangement is ending, your lender may move to a standard variable rate (SRV) which is often higher than other rates on the market. Remortgaging your property can help homeowners avoid paying higher rates. Not to mention, obtaining a further advance with an existing lender might be cheaper than getting a separate second charge mortgage.

If your first mortgage has a favourable rate, replacing the whole balance may be costly. Compare keeping it with a further advance or second charge, including all fees and risks.

Both remortgaging and second-charge borrowing add obligations and can put the home at risk. Neither is automatically the best choice; compare the actual total costs and affordable repayments.

Can I get a second residential mortgage?

As mentioned at the start of the guide, getting a second residential mortgage to buy another property is possible. This involves applying for a separate first charge mortgage to buy the property, not related to your existing property, and the first charge mortgage you are paying for. Many people buy a second property as a holiday home or investment. Speaking to a mortgage broker to find the best mortgage deals is a good idea.

Deposit requirements and maximum loan-to-value depend on the lender, occupancy and product. There is no universal 20% deposit or 80% maximum for every second residential property.

A forum contributor’s description of one lender’s criteria is not a market-wide rule or a current offer. Confirm the actual lender’s requirements. See related guidance.

Affordability Checks

Having enough of a deposit is not all that is required to get a mortgage for a second home. You must complete affordability checks and compare your income to all existing debts. In addition, your credit file will be checked to ensure all debts have been disclosed and to prove you have been able to keep up with other repayments.  

Buy-to-Let Mortgage for Second Property

If you want to rent out the property, you will need a buy-to-let mortgage instead of a residential mortgage. 

Buy-to-let deposit and rental-coverage requirements vary by lender and circumstances. Obtain a current assessment rather than treating 40% as a standard required deposit.

Also mentioned earlier was that some homeowners borrow against their existing home with a second charge mortgage to raise money for a downpayment. From my experience, this can be advantageous when buying a second home, but it won’t always work. 

This is because it creates another debt, and the mortgage lender will assess all debts against your income. They could decide you cannot afford two mortgages on one property and a further mortgage on the second home because of the additional debt. 

Can I get a second mortgage with no equity?

It is impossible to get a second charge mortgage with no remaining equity in your property, but you could still borrow on a second first charge mortgage to buy a second home. 

Because a second charge mortgage is secured against your home equity, with no equity, there would be no collateral available and nothing for you to borrow against. You must have sufficient equity to get a second charge mortgage. You can grow your equity by continuing to pay on your existing mortgage, providing your property does not drastically decrease in value. 

You could get a second first charge mortgage with no equity in another property if you can cover the deposit required to buy the property and prove you can afford the second mortgage. 

However, if you have no equity in your first home, that suggests you have additional debts already tied to this property or the property has decreased in value. If it is the former, these additional debts may make proving you can afford the second first charge mortgage more complicated. However, it is not impossible to prove you can afford it.