How should you go about second charge mortgage comparison? It can be daunting to compare second charge mortgages alone, but we’ve made it easier in this confidence-instilling guide. Learn the fundamentals of how to compare second mortgages here. 

What are second charge mortgages?

Second charge mortgages are a type of secured loan using your property as collateral in the agreement. They are secured against your home equity on properties that already have a first charge mortgage (the mortgage taken out to buy the home). Hence why they are called second charges. You’ll need to have amassed enough home equity to get one of these loans. 

Second charge mortgages are also known as homeowner loans and home equity loans. They provide the loan amount as a lump sum and monthly repayments are made until all of the loan plus interest has been paid back to the lender. You may be able to end the loan early by repaying everything, however, this usually incurs early repayment charges.

Securing any debts against your home comes with an element of risk. If you cannot keep up repayments, the second charge lender can repossess your home and sell it to pay off your debt to the first mortgage lender and themselves. The same can be done by your first mortgage provider if you don’t pay back your first charge mortgage. The first mortgage lender always gets priority over the money from the sale of the property. 

If you are struggling to make repayments on your mortgage or second charge, make sure to communicate with the lender as they could negotiate payment terms or even introduce a repayment holiday. And consider getting free debt advice

Is a second charge the same as a second mortgage?

Second charge mortgages are sometimes called second mortgages. 

But this can be confusing because second mortgages is also a term used when a homeowner wants to buy another home and they need a second residential or second buy-to-let mortgage to do so. They already have one first charge mortgage to buy their current home, and they want a second first charge mortgage to help buy another property. 

Therefore, a second mortgage could refer to a second charge loan, but it may also refer to getting a second mortgage to buy another property. To make things even more confusing, a small number of people take out a second charge and use the loan to fund a holiday home purchase. 

The good news is it’s usually easy to work out what is meant by “second mortgage” from context. 

How much can I borrow?

The amount you can borrow by taking out a second charge mortgage will depend on a number of factors, namely:

  1. The equity in your property
  2. The lender’s loan to value (LTV) ratio
  3. Your finances and credit score

You cannot borrow against all of your available equity as this would be highly risky and could result in negative equity. The amount of equity you can borrow against at most is decided by the lender’s maximum LTV ratio. For most lenders, this is around 80%. Therefore, you could take out a second charge mortgage equal to 80% of your equity. But personal finances and your credit rating could lower the maximum LTV available to you. 

Second charge loans are renowned for enabling homeowners to borrow much greater credit than is available elsewhere depending on their home equity and individual circumstances. This is why they’re often used to finance expensive home improvements and renovations. 

The risks of a second charge mortgage

There are two main risks when you get a second mortgage loan. The first is that securing debts against your home increases the risk that you won’t be able to keep up repayments on those debts and your home may be repossessed in such situations. 

The other risk is that you borrow against a lot of the equity in your home and the property value decreases, resulting in greater debt secured against the property than its worth, also known as negative equity. 

How to compare second mortgages

To compare second mortgages effectively, there are a number of things you should be taking note of. These are:

  1. Is the lender legitimate and are they authorised and regulated by the Financial Conduct Authority (FCA)? 
  2. What is their representative and maximum representative interest rate?
  3. Do they charge appraisal fees?
  4. What other loan (arrangement) fees are involved?
  5. What are the early repayment fees and closing costs?

You could create a spreadsheet to track all of this information across different providers to get a clearer overview of what is on the market. Think carefully before securing another debt against your home and seek professional advice if you are uncertain. 

Second charge mortgage calculators

Second charge mortgage calculators are not as common as other secured loan or personal loan calculators. But you might still find them on some lender websites. They can help you get a clear picture of the repayments you’ll have to make by taking out a specific loan with one lender. This information can be used to compare second charges with other lenders.

But these calculators are not always accurate and only account for the representative rate. Almost half of applicants receive a higher rate than what is shown on the calculator results. Nevertheless, they’re still worth using when available to get an idea of what may be available, especially if you have good credit. 

Second charge mortgage comparison websites

Another resource you can use to compare second charge mortgages is loan comparison websites. They can give you an overview of different secured loans from an array of lenders in just a few clicks, saving you lots of time. Sometimes these websites operate as credit brokers and they might take a commission. And they may not search the whole of the market so you should still do some independent research as well. 

Second charge mortgage comparison support

Support is available to compare second mortgages. You can often find free community money groups and even some debt charities will help you understand second charge loans further, although they may not help you search the market.

For help searching and comparing, you could use credit brokers, mortgage brokers or finance services. These come at a cost and may or may not help you save time and money. 

Are second mortgage rates higher?

Second charge mortgage rates are often higher than first charge mortgage rates because you would be taking out this secured loan with more debt from your existing mortgage. However, second charge mortgages can offer competitive interest rates in comparison to other secured loan options.

The interest rate you are offered will always be based on personal circumstances and your credit history. 

How to get the best second charge mortgage rates

An effective second charge mortgage comparison strategy will help you get the best mortgage rates. Only by comparing as much of the market as possible will you be able to uncover the best deals. Of course, much of the ability to get a low interest rate will depend on individual circumstances and personal finances. 

Can a mortgage company refuse a second mortgage?

A mortgage company can refuse a second mortgage if they think you will struggle to keep up with repayments. They may come to this conclusion because of your finances, existing debts and/or your credit score. If they refuse your loan application, they are also doing this to protect you from getting into debt trouble.  

Can you have two second charge mortgages?

You can have two second charge mortgages on the same property if you have sufficient home equity and the lender agrees you will be able to comfortably afford all the debts secured against your property, as well as personal loans and credit cards if applicable. Just remember that your home may be repossessed if you default on any second charge mortgages. 

When you take out another second charge loan, this loan is also called a second charge, rather than being termed a third charge mortgage. 

Discover more second charge mortgage comparison information

You can learn more about these loans for free at MoneyNerd. We have scored of new and informative guides discussing this topic in more detail, and further tips to help you compare secured loans.

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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