Where can you find second charge mortgage providers in the UK?
We take a hard look at second charge loans before identifying where you can find them and how to spot scams. You have two main options when searching for these loans in the UK – do you know what they are?
What is a second charge mortgage?
A second charge mortgage is a type of secured loan using your home equity – and by extension your home – as collateral in the credit agreement. Although it is referred to as a type of mortgage, it is not a mortgage in the typical sense of helping you buy a property. It is an additional loan attached to a property that already has a first charge mortgage.
Second charge mortgages are also known by other names, including home equity loans and homeowner loans. Most of these products pay out a lump sum loan amount which has to be repaid through monthly payments for a fixed term until the full loan amount and interest has been paid. You might be able to pay back the loan early, but will be subject to early repayment charges to do so.
If you cannot keep up repayments on your second charge, the lender can repossess the home and sell it. Money raised from the sale is used to pay back the first mortgage lender before the second charge lender.
Securing debts against your home presents a risk. You should think carefully before securing another debt on your family home. If you do decide to take out a second charge, only consider options offered by lenders that are authorised and regulated by the Financial Conduct Authority.
Is a second charge the same as a second mortgage?
It depends who you ask…
Second charge mortgages are sometimes shortened to second mortgages. But this can cause confusion because someone may refer to a second mortgage in another way, meaning a second first charge mortgage used to buy a second residential home, holiday home or buy-to-let investment.
Second charge mortgages and second first charge mortgages are not the same. One is a secured loan against property and the other is a loan to buy a property (also secured against it). You can usually work out what someone means when they refer to a second mortgage by the context of the conversation.
Can I get a second charge mortgage?
To be approved for a second charge, you’ll first need to meet the lender’s eligibility criteria. This often means being of a certain age, living in the UK permanently, possibly having a minimum annual income, and most importantly, having enough home equity to take out the lender’s minimum loan amount.
If you are suitable to apply and do so, your application will be scrutinised to ensure you can afford the loan. This involves an assessment to see how much of your income will be needed to pay back the loan and other debts you may have, such as your existing mortgage and maybe a credit card. Your credit score will also be checked to see how you have managed debt repayments previously.
Where can I get a second charge mortgage?
Second charge mortgages are widely available in the UK from direct lenders and through credit and mortgage brokers. We explain the difference with some examples below:
Second charge mortgage providers
Direct second charge mortgage providers are lenders that provide the second mortgage directly, meaning the money is provided by them and you only deal with this company. The most common examples of direct second charge loan providers are high-street banks. When you deal with a UK bank, you can be sure they are a direct lender.
Many UK banks offer second charge mortgages but may not advertise them as comprehensively on their website as other products, such as bank accounts and personal loans. You might need to speak with your bank over the phone or by visiting a branch to learn more about home equity loans or HELOCs.
There are also some dedicated mortgage providers and online lenders who may offer second charge mortgages or equivalent credit products.
Second charge mortgage broker
It’s also possible to get a second mortgage from a credit broker or through a mortgage broker. These are companies that don’t provide the loan directly, but will search the market and options to help you secure a suitable and beneficial second charge loan.
The benefit of using a mortgage or credit broker is that it outsources the process of searching for and comparing second mortgages. It can save you time and worry, and may even help you find a better mortgage deal, but using these companies also comes at a cost. You may have to pay an upfront fee, commission or both.
How to spot legal second charge mortgage providers
When searching for a second mortgage, the most important box to tick is that the lender is operating legally. They must be authorised and regulated by the Financial Conduct Authority. This information is usually found at the bottom of the lender’s website homepage, or at the bottom of all their web pages.
If they are not regulated by the Financial Conduct Authority, they could be a scam company or a loan shark.
Can a mortgage company refuse a second charge?
Mortgage companies can refuse your second charge in the same way that personal loans can be refused. If the lender thinks you cannot comfortably afford repayments then they have the right to deny you the second charge.
This is to protect themselves, but it is also to protect the applicant from getting into credit agreements that could cause financial difficulty and arrears.
Can you have more than one second charge mortgage?
You can have more than one second charge mortgage on a single property if you have the available home equity in the home to secure the loan against, and as long as the lender believes it will be affordable to you.
Interestingly, a subsequent second charge mortgage is also called a second charge – rather than it benign called a third charge mortgage.
Can I get a second charge mortgage with bad credit?
It’s still possible to get approved for a second charge loan with a poor credit rating. As these are a type of secured loan, you stand a slightly better chance of being approved for a second mortgage than you would an unsecured loan. However, if you are approved, you may have to pay a higher interest rate.
Are second charge mortgages bad?
Second mortgages are sometimes considered bad because they are secured by the equity in your home and therefore run the risk that your home may be repossessed if you don’t meet your payment obligations. However, they can be a beneficial source of credit, especially if you are a homeowner wanting to take out a substantial loan amount at a competitive interest rate.
Think carefully before securing more debts against your home. Get free debt or money advice from a local community group of charity for further support.
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