Second Charge Mortgages – Pros, Cons and FAQs

Welcome! Are you considering a second charge mortgage or wondering if it could affect your credit score? This guide is here to help.

Over 6,900 people visit our site each month to learn about secured loans, so you’re in good company.

In this guide, we’ll explain:

• What a second charge mortgage is.
• The difference between first and second charge mortgages.
• The cost of a bad second charge mortgage.
• How to get a second charge mortgage.
• How much you can borrow on a second charge mortgage.

We know that taking out a second mortgage can be a big step – you may be worried about the costs or whether it will hurt your credit score. It’s normal to have these concerns, and it’s important to get the right advice. We’re here to support you with clear, easy-to-understand information.

What is a second charge mortgage?

A second charge mortgage is any secured loan taken out against a property with a residential or buy-to-let mortgage already secured against the property.

The mortgage is used to purchase the property and the second charge mortgage is secured by some of the home equity built up in the property. 

The second charge is usually paid out as a lump sum loan and then repaid via monthly repayments for a fixed period. This can be further understood by reading our second charge mortgage example.  

There are different types of secured loans that fall under the umbrella of a second charge mortgage, such as a home equity loan or homeowner loan. We have discussed these different secured loans extensively, which you can find by heading back to our main secured loan page. 

What is the difference between a first charge and second charge mortgage?

A first charge mortgage refers to any residential or buy-to-let mortgage used to purchase a property via monthly mortgage repayments. A second charge mortgage is any secured loan taken out against a property with an outstanding first charge mortgage.

There are some other differences between first and second charge mortgages. 

The first charge is considered the senior lien of credit, whereas second charges are considered the junior lien of credit. 

This difference is important, especially if either the first charge lender or the second charge lender wishes to foreclose on the property because their loan wasn’t repaid. 

The first charge lender always gets priority to the sale proceeds. So the mortgage lender can access the money to clear its own debt before the second charge lender. 

In most cases, this shouldn’t be a problem. But if the homeowner/debtor is in negative equity, it could mean the second charge lender isn’t repaid in full. 

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How does getting a second charge mortgage work?

You can take out a second charge mortgage on a residential home or investment property. It can be more difficult to get a second charge on a BTL if you also have a mortgage to pay on your home. 

In either case, the loan is secured by a portion of available home equity. Most lenders can offer you a second charge loan up to 80% of your available home equity at best. To apply for this loan, you can apply directly online or speak with a mortgage broker who can help you search your options.

As part of the application process, the lender may need to come and re-value your home. 

Is a second charge mortgage more expensive?

Second charge mortgages can offer comparable interest rates to a first charge mortgage used to help buy the property. However, if anything second charge mortgages can be slightly more expensive. 

Even the better second charge mortgage rates can be more than a residential mortgage because second charges are the junior lien or credit and therefore have slightly more risk that a senior lien of credit in the first charge mortgage. 

It’s also worth noting that most second charge mortgage loans come with a fixed interest rate – not all of them. Whereas residential mortgages may offer a variable rate that can be lower during times of inflation. 

Who could benefit from a second charge mortgage?

Homeowners requiring significant credit could benefit from a second charge mortgage. It may not be suitable for some homeowners, especially if they only require a small loan. You may want to consider getting second charge mortgage advice before proceeding. 

How much can I borrow on a second charge mortgage?

To work out your second charge mortgage borrowing power, you’ll need to work out how much home equity you have available. 

You can do this by subtracting all debt secured by the property – including the first charge mortgage – away from its current market value. For example, a property worth £200,000 with a £50,000 outstanding mortgage has 75% home equity equivalent to £150,000. 

In a best-case scenario, you’ll be able to borrow 80% of your home equity with most lenders. This is known as the lender’s loan-to-value LTV ratio. In the example above, this would equate to a maximums second charge loan of £120,000.

You might be able to shorten this process by using second charge mortgage calculators on lender websites. But be aware that these calculators aren’t always accurate. 

Why would you get a second charge mortgage?

You might decide to get a second charge mortgage for a variety of purposes. 

In fact, there aren’t usually restrictions placed on second charge mortgage loans, meaning the money can be spent as you wish.

Can I get a second mortgage for home improvement?

Home improvements is one of the most common reasons people take out a second charge loan. By borrowing against equity and then using the loan to improve the property, the value of the property is likely to increase and therefore boost your amount of equity once again. 

This makes home improvements a clever reason to borrow with a second charge. There are even some exclusive second charge mortgages to make home improvements, namely a home improvement loan. 

Can I get a second mortgage to buy another property?

Yes, and this is what’s known as a soft second mortgage. They are designed to be used to cover either a downpayment of a property purchase or the closing costs of a mortgage. I’ve written in depth about soft second mortgages in this post.

Can I get a second mortgage to pay off debt?

Yes, a second charge mortgage can be used to pay off single or multiple other debts. This is known as debt consolidation. 

A second charge mortgage debt consolidation loan is any second charge loan that is taken out for the primary purpose of clearing existing debts, such as other secured loans, unsecured loans and credit cards. 

By using the credit to pay these debts off, you’re consolidating the debt into the new second charge loan debt. As second charge loans usually have competitive interest rates, the consolidation process should save the debtor money on their interest repayments. 

However, using a second charge to pay off debt does add more debt to your home. 

What to consider before taking out a second mortgage

Before you take out a second charge mortgage, you should consider your suitability for these loans and their pros and cons. You might want to get financial advice to clarify your position. 

Pros and cons of second charge mortgages

Second charge mortgages have important pros and cons you need to fully understand.

The pros

1. Borrow against home equity which can allow you to get a loan amount beyond standard unsecured and secured personal loans of usually £25,000. You could even borrow over £100,000 in some cases. 
2. Because you are securing the loan with your home equity, you might be able to find more competitive interest rates than alternative credit options. You’ll still need to compare second charges to uncover the better deals. 
3. The money can be used without restrictions and spent as you need.

The cons

1. Second charge mortgages add more debt to your home, meaning it will take longer to clear the home of debt and make it 100% yours.
2. Second charge mortgages might have minimum loan amounts, making them unsuitable for people who need smaller loans.
3. Defaulting on a secured loan could lead to foreclosure, which is when your home is forcibly sold to repay the debt. 
4. Getting a second charge mortgage might include various fees

Second charge mortgage for all purposes

• Stuck paying high interest on credit card debts & loans?
• Looking to fund a home improvement project?
• Dreaming of finally taking the once-in-a-lifetime trip?

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Can I take out a second charge mortgage with bad credit? 

Getting a second charge mortgage with a bad credit rating is more challenging, but it’s still very much possible. 

Secured loans are generally easier to get approved with unsatisfactory credit because an asset is being used as collateral. Thus making it easier for the lender to recover the debt should you fail to repay.

You might want to look for bad credit second charge mortgages, which are the same loans marketed to people with unsatisfactory credit. 

And if you’ve previously been made bankrupt, you may want to read our Second Mortgage after Bankruptcy guide for information.  

Can a mortgage lender refuse a second charge?

Yes, a mortgage lender and any other lender can refuse an application for a second charge mortgage. 

A second charge mortgage application might be refused if:

1. The loan is deemed unaffordable for you alongside existing debt repayments, including first mortgage payments
2. There are complications with the property ownership, such as a deceased person still being named on the deeds.
3. Surveyors find major issues with the property during its appraisal. 

Despite secured loans not putting as much weight on your credit report, a poor credit score might still stop you from getting approved. 

How many second mortgages can I have?

There are no laws stopping you from taking out as many second charge mortgages as you need, either one after another or simultaneously. 

But your finances and home equity will determine whether or not you can get approved for multiple second charge mortgages.

Getting an initial second charge loan is relatively straightforward, but any subsequent second mortgage can be complicated if the initial second charge has yet to be fully repaid. 

Does a second mortgage hurt your credit?

Taking out a second charge mortgage can do slight damage to your credit report as part of the lender’s checks. 

But repaying the second mortgage as agreed will improve your credit score by showing you can manage your debt repayments and personal finances effectively. 

Secured loan alternatives to a second mortgage

Alternatives to a second mortgage can include:

1. A secured personal loan using other assets as security (not as common)
2. Remortgaging and borrowing more
3. Taking a further advance on your existing mortgage
4. Unsecured borrowing

Should I take out a second charge mortgage or remortgage? 

The decision to use a second charge mortgage to release equity or remortgage and release equity can only be an individual decision based on personal circumstances. 

Remortgaging may or may not offer a better interest rate on the additional borrowing, but remortgaging can also trigger early repayment charges on the initial mortgage.
One way of avoiding the early repayment charge but borrowing more from your existing mortgage is to ask for a further advance instead.

Second charge mortgage FAQs