Second Charge Mortgage for People with Bad Credit

Wondering about a second charge mortgage, but worried about your bad credit? Don't worry, you're not alone.

In this article, we’ll cover:

• What a second charge mortgage is and how it works.
• The true cost of a bad second charge mortgage.
• The pros and cons of a second charge mortgage.
• How to apply for a second charge mortgage.
• Ways to improve your credit score.

Some lenders consider adverse credit, but advice does not guarantee a suitable loan or acceptance. Assess the costs and home-security risk carefully.

Let’s dive in!

Can you get a second mortgage with bad credit?

Bad credit does not automatically prevent a second charge, but security does not guarantee easier approval. Lenders still assess affordability, credit, property and legal requirements. See related guidance.

The loan is secured on the property. Missed payments can lead to repossession through the applicable legal process; security does not remove affordability checks or give the lender an automatic right to take the home without that process.

Second charge mortgage bad credit example

Simply Adverse describes itself as a mortgage broker, not the lender. Check its current service, fees, panel and relevant permissions; its mention here is not a recommendation or an offer.

Using comparison websites can also help you cut through the noise and find the most suitable and beneficial second mortgage for your needs.

Can a lender refuse a second charge mortgage?

Just having enough home equity to borrow against is not always enough to get a second mortgage. A lender can refuse an application for a second charge mortgage if they believe you cannot afford the repayments or if poor credit history causes them concerns. 

This is why you should check your credit score before making an application for a second mortgage. You might have bad credit unknowingly – and you could try and improve it before applying. 

How to get a second charge mortgage?

Second charges are often arranged through specialist lenders or brokers. Do not assume every bank or building society provides this product directly.

As mentioned earlier, only use financial services and products that are authorised and regulated by the Financial Conduct Authority. 

What happens if you can’t afford your second charge mortgage?

Missed payments can lead to repossession through the applicable legal process. Contact the lender and a debt adviser early; the home is at risk.

Sale proceeds meet relevant costs and secured claims in their priority order, normally the first charge before the second.

Any remaining money is given to the homeowner, while any underpayments keep the debt still alive, which could result in serious problems and even bankruptcy. 

Do not assume that reduced equity prevents recovery action. A lender’s decision depends on the case and available legal options.

Can you borrow more on a mortgage with bad credit?

Refinancing a mortgage is still possible if you have bad credit. Those with a good or excellent credit score may be able to borrow more against their home equity with a more appealing interest rate, but those with bad credit can still consider this option. 

Choosing to refinance your mortgage instead

An alternative method of raising funds is to remortgage your existing mortgage and ask for more money borrowed against home equity. If you switch your existing mortgage to a different lender to do this, you may have to pay an early repayment charge on the first mortgage.

For example, if you have a £100,000 mortgage and £100,000 home equity (£200,000 home), then you could refinance your mortgage with your current or a different lender so you borrow extra against home equity. If you were to borrow against £35,000 equity, your new mortgage would be for £135,000 plus fees. 

Home Equity Line of Credit

A US-style HELOC should not be assumed available or cheaper than remortgaging in the UK. Compare an appropriate further advance, remortgage or second charge using current terms; a calculator is only an illustration.

The Role of Mortgage Brokers

In my experience, it can be worth using a mortgage broker to help you find the best deal, especially if you have bad credit.

How to improve your credit score

If the reason you need to borrow money is not urgent, you may prefer to try and improve your credit file before applying. Here are some short and long-term methods of doing just that:

1. Check reports for errors and dispute inaccurate information. Corrections do not guarantee a particular score increase or loan approval.
2. Register on the electoral roll if eligible and keep address information accurate; this can help identity checks.
3. Reducing credit utilisation may help your profile over time, but score changes and future approval are not guaranteed.
4. Avoid other debts and arrears by budgeting effectively. 

What should I do if I am struggling to pay my second charge mortgage?

If you are having difficulty paying your second mortgage, you should speak with the lender as early as possible.

The lender may consider an affordable arrangement, but extending the term can increase total cost and may affect the credit record. Do not assume an arrangement guarantees the home is protected.

Debt advice is also available from exceptional UK debt charities.