Second charge mortgages (Secured loans)
Secured loans are usually secured against UK property, and can provide borrowers with funds which can be used for a variety of purposes ...
Borrow £10,000 to £500,000 over terms from 1 to 30 years
Also referred to as Homeowner Loans or Second charge Mortgages, these types of secured loans help you borrow larger sums of money typically secured against your property, using it as collateral. They can be taken out over a longer period of time, and often used for higher value expenses.
Typical uses of secured loans
Secured loans can be used for many different purposes, such as ...
- Debt consolidation loans
- Finance a home improvement
- Pay for a wedding or holiday
- Pay educational fees
- Start a new business
- Help family member buy property
- Motor vehicle Loans
- Purchase an additional property
- Purchase your freehold
- Pay for healthcare / medical treatment
The amount you are able to borrow and the rate that you are quoted will depend on your circumstances, but with a secured loan the amount of equity you have in your property will also affect this. Lending can also be secured behind interest-only mortgages.
| Key features | Current at September 2024 |
| Loan sizes: | £10,000 to £500,000 |
| Legal charge: | 2nd charge |
| LTV: | up to 85% |
| Term: | 1 - 30 years |
| Age limits: | 18 - 85 years of age |
| Interest: | Capital repayment / Interest only options available |
| Adverse credit: | Accepted (inc. CCJs, defaults, & debt management plans or IVAs) |
| Ratios: | No LTI/DTI caps and bespoke affordability criteria* |
| Self-employed limit: | Minimum self-employed term is 12 months |
| Locations: | England, Scotland, Wales and Northern Ireland |
* LTI: Loan to income ratio / DTI: Debt to income ratio
- No costs, fees, or charges are required to be paid upfront
- 21 days until most clients typically receive their money
Secured loan example
In this example, let's say you currently own a property with an existing mortgage and you've built up some equity over time. You've decided that you now require additional funds for a home renovation project. Instead of refinancing your entire first mortgage, you decide to apply for a second charge mortgage ...
⮞ Here's how it might work ...
Second charge loans, also known as second mortgages or homeowner loans, are secured loans. When you opt for a second charge loan, you will have two separate mortgages on your home. However, it's important to note that your main mortgage takes priority over the second charge loan.
Scenario: Let's assume you bought your home for £300,000 a few years ago and took out a mortgage (first charge) of £200,000 to purchase it. As a result, you have £100,000 in equity in your property (£300,000 property value - £200,000 mortgage balance).
What you want the funds for: You now wish to carry out a home renovation or extension with an estimated cost of works of £50,000.
Rasing the funds: Rather than refinancing your entire first mortgage, you decide to apply for a second charge mortgage to access the funds you need. You're approved for a second charge mortgage of up to £40,000.
Total Debt: After taking out the second charge mortgage, your total debt secured against your property would be £240,000 (£200,000 first mortgage + £40,000 second charge mortgage).
Repayment: You will have a separate repayment plan for the second charge mortgage. This might involve making monthly repayments, just like with your first mortgage. The interest rate on the second charge mortgage may be different from your initial mortgage, and the term of the loan (1 - 30 years) may also vary.
Priority of repayment: Your first charge mortgage lender would have the first claim on the property's value if it were to be sold. If the property was sold, the first mortgage would be paid off first from the proceeds, and any remaining funds would go toward paying off the second charge mortgage.
It's important to note that a second charge mortgage is still a secured loan, and your property serves as collateral. Before obtaining a second charge mortgage, it's crucial to carefully consider the terms, interest rates, fees, and your ability to make repayments. Consulting with a mortgage broker or financial advisor is necessary to ensure it's the right option for your financial situation and you get the best deal available at the time.
Frequently asked questions
These are the most commonly asked questions regarding secured second charge mortgages, if you can't find your answer below please get in touch and we will be happy to assist you.
⮞ What is a Secured Loan?
Second charge loans, also known as second mortgages or homeowner loans, are secured loans. When you opt for a second charge loan, you will have two separate mortgages on your home. However, it's important to note that your main mortgage takes priority over the second charge loan.
⮞ Can I obtain a second charge mortgage?
To qualify for a second charge mortgage, you must be a homeowner.
Your eligibility for approval of a secured loan or second charge mortgage primarily depends on the value of your property and whether it aligns with the amount you wish to borrow.
Lenders will also likely consider factors such as your income, debt-to-income ratio (the ratio of existing debt payments to your income), and your credit history.
⮞ How much can I borrow on a second charge?
The amount you can borrow on a second charge mortgage is determined by the equity you have in your home.
Equity represents the percentage of your property that you fully own – calculated as the value of your property minus your first charge mortgage balance. For instance, if your property is worth £100,000, and your mortgage is £60,000, you have £40,000 or 40% equity in your property.
Most second charge mortgage lenders impose a maximum loan-to-value (LTV) ratio for the combined first and second charge mortgages on a property.
For example, with a mortgage LTV of 60% in the above scenario, if a second charge lender has a maximum LTV of 80%, you could borrow another £20,000 (20%) secured against the property.
⮞ How do Second Charge Loans work?
A second charge mortgage allows you to utilise the equity you have in your home as collateral for another loan. Equity represents the portion of your property that you fully own, which is the value of your home minus any outstanding mortgage amount.
Functionally, a second charge loan operates similarly to your primary mortgage. For instance, if you sell your property with an existing mortgage, you must use the proceeds to pay off that mortgage. Likewise, any second charge loan secured against the property must also be repaid.
⮞ How long does it take to process a secured loan?
Completing the secured loan procedure promptly hinges on your ability to efficiently and accurately furnish all necessary information.
Upon submitting your secured loan application, you will typically receive a quotation. This quotation necessitates validation and confirmation from your lender. Should you choose to advance, your lender will then evaluate your credit report.
For loans secured against your property, the lender will inquire about its valuation. Essentially, they seek assurance that your home's equity (synonymous with 'worth' or 'value') adequately covers the loan amount.
Throughout the secured loan process, you may also be required to provide banking particulars and additional financial data. This timeline varies among lenders but can span several weeks. Feel free to inquire about an estimated timeframe when you decide to proceed.
⮞ Why Choose a Second Charge Loan?
Second charge loans serve as an alternative to remortgaging, particularly if you have a fixed-rate mortgage with early repayment charges or an interest-only mortgage.
Here are some reasons why a second charge loan might be more favorable than remortgaging:
- If your credit score has declined since obtaining your first mortgage.
- In case of changed circumstances that could result in a higher interest rate on your entire mortgage.
- When a second charge mortgage proves to be a more cost-effective option than remortgaging.
⮞ What Can Second Charge Loans Be Used For?
Second charge loans can be used for a variety of purposes, similar to first charge mortgages, but they come with their own set of terms and conditions, including
- Home Improvements: Many homeowners use second charge loans to fund home renovation or improvement projects. This could include extensions, loft conversions, kitchen upgrades, or other home enhancements that add value to the property.
- Debt Consolidation: Some individuals use second charge loans to consolidate high-interest debts, such as credit card debts or personal loans, into a single, more manageable monthly payment. By securing the loan against their property, they may be able to secure a lower interest rate compared to unsecured debt.
- Property Investment: Second charge loans can also be used by property investors to finance the purchase of additional properties or to fund property development projects.
- Education Expenses: Homeowners may use a second charge loan to cover education-related expenses, such as tuition fees for themselves or their children.
- Emergency Expenses: Second charge loans can be used to cover unexpected or emergency expenses, such as medical bills or urgent repairs.
- Business Purposes: Some entrepreneurs and business owners may use second charge loans to inject capital into their businesses, purchase commercial property, or fund expansion plans.
- Buy-to-Let Investments: Individuals looking to invest in buy-to-let properties may use second charge loans to finance the purchase or renovation of rental properties.
⮞ Can I use a second mortgage to settle debts?
Yes, a second charge mortgage can be utilised for debt consolidation, wherein it is employed to pay off one or multiple existing debts.
A second charge mortgage debt consolidation loan refers to any second charge loan taken out primarily to clear other debts, including secured loans, unsecured loans, and credit cards.
By using the credit from the second charge loan to settle these debts, the borrower combines the debts into the new second charge mortgage debt. Given that second charge loans often offer competitive interest rates, this consolidation process can save the borrower money on interest repayments. However, it's important to consider that using a second charge loan to pay off debts adds more debt to your home.
⮞ Pros and Cons of a Second Charge mortgage?
- The loan is secured against your home, putting your home at risk if you fail to keep up with repayments.
- Some secured loans may have higher interest rates depending on your circumstances, and additional fees may apply. It is crucial to review any costs associated with your secured loan.
- By securing previously unsecured debts against your home, you might initially achieve cost savings, but it could lead to an extended loan term.
Cons:
- Generally, a secured loan is more cost-effective than a personal loan.
- You can borrow more than five times your income, as second charge lenders assess affordability, allowing you to potentially borrow up to ten times your income.
- Typically, you have a longer term to repay the secured loan or second charge mortgage.
- Second charge mortgages are usually quick to set up, and you can receive the funds promptly.
Pros:
⮞ Is remortgaging a better option?
Whether a second charge mortgage or remortgaging to release cash is more suitable depends on individual circumstances. If your current mortgage rate is exceptionally low, you might prefer to retain it and opt for a second charge mortgage for additional borrowing.
Remortgaging may involve paying an early repayment charge (ERC) on your existing mortgage, especially if you want to remortgage before the end of a fixed-rate term. ERCs can be costly, although they often reduce each year of the deal.
You may find remortgaging more beneficial if you can secure a cheaper interest rate compared to your current one. This option also keeps things simple, as you will only have one loan secured on the property.
If neither remortgaging nor a second charge mortgage seems suitable, you might consider a 'further advance' as another option. This involves obtaining an additional loan from the same lender, usually at a higher interest rate, and secured on your property. Although it operates similarly to a second charge mortgage, only one lender is involved.
⮞ Are second charge mortgages FCA regulated?
Since 2016, second charge mortgages and secured loans have been regulated by the Financial Conduct Authority (FCA). Regulation ensures consumer protection from incorrect advice or mis-selling by lenders or brokers. Second charge mortgage lenders must comply with FCA mortgage rules regarding affordable lending, advice, and handling payment difficulties.
⮞ Alternatives to second charge mortgages?
While a second charge mortgage or secured loan is the main focus here, it is not the only borrowing option available.
Unsecured Loan: An unsecured loan, also known as a personal loan, is a form of borrowing that is not secured against any of your other assets. Lenders rely on your credit score and other indicators to determine your creditworthiness.
Unsecured loans are typically smaller than secured loans and have shorter terms, making them suitable for borrowing amounts under £50,000.
Credit Card: Credit cards can be an excellent alternative to loans if you only need to borrow a relatively small amount and want the flexibility to use the credit when needed.
Credit cards usually have lower overall credit limits compared to loans but offer flexible monthly repayments. You can choose to make only the minimum repayment, which is often quite low, and decide when to pay off more of the debt at your convenience.
However, for larger borrowing needs, a second charge mortgage (secured loan) might be a more appropriate option.
Second charge mortgages (Secured loans)
Secured loans are usually secured against UK property, and can provide borrowers with funds which can be used for a variety of purposes ...
Borrow £10,000 to £500,000 over terms from 1 to 30 years
Also referred to as Homeowner Loans or Second charge Mortgages, these types of secured loans help you borrow larger sums of money typically secured against your property, using it as collateral. They can be taken out over a longer period of time, and are often used for higher value expenses.
Typical uses of secured loans
Secured loans can be used for many different purposes, such as ...
- Debt consolidation loans
- Finance a home improvement
- Pay for a wedding or holiday
- Pay educational fees
- Start a new business
- Help family member buy property
- Motor vehicle Loans
- Purchase an additional property
- Purchase your freehold
- Pay for healthcare / medical treatment
The amount you are able to borrow and the rate that you are quoted will depend on your circumstances, but with a secured loan the amount of equity you have in your property will also affect this. Lending can also be secured behind interest-only mortgages.
| Key features | Current at September 2024 |
| Loan sizes: | £10,000 to £500,000 |
| Legal charge: | 2nd charge |
| LTV: | up to 85% |
| Term: | 1 - 30 years |
| Age limits: | 18 - 85 years of age |
| Interest: | Capital repayment / Interest only options available |
| Adverse credit: | Accepted (inc. CCJs, defaults, & debt management plans or IVAs) |
| Ratios: | No LTI/DTI caps and bespoke affordability criteria* |
| Self-employed limit: | Minimum self-employed term is 12 months |
| Locations: | England, Scotland, Wales and Northern Ireland |
* LTI: Loan to income ratio / DTI: Debt to income ratio
- No costs, fees, or charges are required to be paid upfront
- 80% of clients proceed to make a full loan application
- 46% proceed from initial contact to payout of their loan
- 21 days until most clients typically receive their money
Secured loan example
In this example, let's say you currently own a property with an existing mortgage and you've built up some equity over time. You've decided that you now require additional funds for a home renovation project. Instead of refinancing your entire first mortgage, you decide to apply for a second charge mortgage ...
⮞ Here's how it might work ...
Second charge loans, also known as second mortgages or homeowner loans, are secured loans. When you opt for a second charge loan, you will have two separate mortgages on your home. However, it's important to note that your main mortgage takes priority over the second charge loan.
Scenario: Let's assume you bought your home for £300,000 a few years ago and took out a mortgage (first charge) of £200,000 to purchase it. As a result, you have £100,000 in equity in your property (£300,000 property value - £200,000 mortgage balance).
What you want the funds for: You now wish to carry out a home renovation or extension with an estimated cost of works of £50,000.
Rasing the funds: Rather than refinancing your entire first mortgage, you decide to apply for a second charge mortgage to access the funds you need. You're approved for a second charge mortgage of up to £40,000.
Total Debt: After taking out the second charge mortgage, your total debt secured against your property would be £240,000 (£200,000 first mortgage + £40,000 second charge mortgage).
Repayment: You will have a separate repayment plan for the second charge mortgage. This might involve making monthly repayments, just like with your first mortgage. The interest rate on the second charge mortgage may be different from your initial mortgage, and the term of the loan (1 - 30 years) may also vary.
Priority of repayment: Your first charge mortgage lender would have the first claim on the property's value if it were to be sold. If the property was sold, the first mortgage would be paid off first from the proceeds, and any remaining funds would go toward paying off the second charge mortgage.
It's important to note that a second charge mortgage is still a secured loan, and your property serves as collateral. Before obtaining a second charge mortgage, it's crucial to carefully consider the terms, interest rates, fees, and your ability to make repayments. Consulting with a mortgage broker or financial advisor is necessary to ensure it's the right option for your financial situation and you get the best deal available at the time.
Frequently asked questions
These are the most commonly asked questions regarding secured second charge mortgages, if you can't find your answer below please get in touch and we will be happy to assist you.
⮞ What is a Secured Loan?
Second charge loans, also known as second mortgages or homeowner loans, are secured loans. When you opt for a second charge loan, you will have two separate mortgages on your home. However, it's important to note that your main mortgage takes priority over the second charge loan.
⮞ Can I obtain a second charge mortgage?
To qualify for a second charge mortgage, you must be a homeowner.
Your eligibility for approval of a secured loan or second charge mortgage primarily depends on the value of your property and whether it aligns with the amount you wish to borrow.
Lenders will also likely consider factors such as your income, debt-to-income ratio (the ratio of existing debt payments to your income), and your credit history.
⮞ How much can I borrow on a second charge?
The amount you can borrow on a second charge mortgage is determined by the equity you have in your home.
Equity represents the percentage of your property that you fully own – calculated as the value of your property minus your first charge mortgage balance. For instance, if your property is worth £100,000, and your mortgage is £60,000, you have £40,000 or 40% equity in your property.
Most second charge mortgage lenders impose a maximum loan-to-value (LTV) ratio for the combined first and second charge mortgages on a property.
For example, with a mortgage LTV of 60% in the above scenario, if a second charge lender has a maximum LTV of 80%, you could borrow another £20,000 (20%) secured against the property.
⮞ How do Second Charge Loans work?
A second charge mortgage allows you to utilise the equity you have in your home as collateral for another loan. Equity represents the portion of your property that you fully own, which is the value of your home minus any outstanding mortgage amount.
Functionally, a second charge loan operates similarly to your primary mortgage. For instance, if you sell your property with an existing mortgage, you must use the proceeds to pay off that mortgage. Likewise, any second charge loan secured against the property must also be repaid.
⮞ How long does it take to process a secured loan?
Completing the secured loan procedure promptly hinges on your ability to efficiently and accurately furnish all necessary information.
Upon submitting your secured loan application, you will typically receive a quotation. This quotation necessitates validation and confirmation from your lender. Should you choose to advance, your lender will then evaluate your credit report.
For loans secured against your property, the lender will inquire about its valuation. Essentially, they seek assurance that your home's equity (synonymous with 'worth' or 'value') adequately covers the loan amount.
Throughout the secured loan process, you may also be required to provide banking particulars and additional financial data. This timeline varies among lenders but can span several weeks. Feel free to inquire about an estimated timeframe when you decide to proceed.
⮞ Why Choose a Second Charge Loan?
Second charge loans serve as an alternative to remortgaging, particularly if you have a fixed-rate mortgage with early repayment charges or an interest-only mortgage.
Here are some reasons why a second charge loan might be more favorable than remortgaging:
- If your credit score has declined since obtaining your first mortgage.
- In case of changed circumstances that could result in a higher interest rate on your entire mortgage.
- When a second charge mortgage proves to be a more cost-effective option than remortgaging.
⮞ What Can Second Charge Loans Be Used For?
Second charge loans can be used for a variety of purposes, similar to first charge mortgages, but they come with their own set of terms and conditions, including
- Home Improvements: Many homeowners use second charge loans to fund home renovation or improvement projects. This could include extensions, loft conversions, kitchen upgrades, or other home enhancements that add value to the property.
- Debt Consolidation: Some individuals use second charge loans to consolidate high-interest debts, such as credit card debts or personal loans, into a single, more manageable monthly payment. By securing the loan against their property, they may be able to secure a lower interest rate compared to unsecured debt.
- Property Investment: Second charge loans can also be used by property investors to finance the purchase of additional properties or to fund property development projects.
- Education Expenses: Homeowners may use a second charge loan to cover education-related expenses, such as tuition fees for themselves or their children.
- Emergency Expenses: Second charge loans can be used to cover unexpected or emergency expenses, such as medical bills or urgent repairs.
- Business Purposes: Some entrepreneurs and business owners may use second charge loans to inject capital into their businesses, purchase commercial property, or fund expansion plans.
- Buy-to-Let Investments: Individuals looking to invest in buy-to-let properties may use second charge loans to finance the purchase or renovation of rental properties.
⮞ Can I use a second mortgage to settle debts?
Yes, a second charge mortgage can be utilised for debt consolidation, wherein it is employed to pay off one or multiple existing debts.
A second charge mortgage debt consolidation loan refers to any second charge loan taken out primarily to clear other debts, including secured loans, unsecured loans, and credit cards.
By using the credit from the second charge loan to settle these debts, the borrower combines the debts into the new second charge mortgage debt. Given that second charge loans often offer competitive interest rates, this consolidation process can save the borrower money on interest repayments. However, it's important to consider that using a second charge loan to pay off debts adds more debt to your home.
⮞ Pros and Cons of a Second Charge mortgage?
- The loan is secured against your home, putting your home at risk if you fail to keep up with repayments.
- Some secured loans may have higher interest rates depending on your circumstances, and additional fees may apply. It is crucial to review any costs associated with your secured loan.
- By securing previously unsecured debts against your home, you might initially achieve cost savings, but it could lead to an extended loan term.
Cons:
- Generally, a secured loan is more cost-effective than a personal loan.
- You can borrow more than five times your income, as second charge lenders assess affordability, allowing you to potentially borrow up to ten times your income.
- Typically, you have a longer term to repay the secured loan or second charge mortgage.
- Second charge mortgages are usually quick to set up, and you can receive the funds promptly.
Pros:
⮞ Is remortgaging a better option?
Whether a second charge mortgage or remortgaging to release cash is more suitable depends on individual circumstances. If your current mortgage rate is exceptionally low, you might prefer to retain it and opt for a second charge mortgage for additional borrowing.
Remortgaging may involve paying an early repayment charge (ERC) on your existing mortgage, especially if you want to remortgage before the end of a fixed-rate term. ERCs can be costly, although they often reduce each year of the deal.
You may find remortgaging more beneficial if you can secure a cheaper interest rate compared to your current one. This option also keeps things simple, as you will only have one loan secured on the property.
If neither remortgaging nor a second charge mortgage seems suitable, you might consider a 'further advance' as another option. This involves obtaining an additional loan from the same lender, usually at a higher interest rate, and secured on your property. Although it operates similarly to a second charge mortgage, only one lender is involved.
⮞ Are second charge mortgages FCA regulated?
Since 2016, second charge mortgages and secured loans have been regulated by the Financial Conduct Authority (FCA). Regulation ensures consumer protection from incorrect advice or mis-selling by lenders or brokers. Second charge mortgage lenders must comply with FCA mortgage rules regarding affordable lending, advice, and handling payment difficulties.
⮞ Alternatives to second charge mortgages?
While a second charge mortgage or secured loan is the main focus here, it is not the only borrowing option available.
Unsecured Loan: An unsecured loan, also known as a personal loan, is a form of borrowing that is not secured against any of your other assets. Lenders rely on your credit score and other indicators to determine your creditworthiness.
Unsecured loans are typically smaller than secured loans and have shorter terms, making them suitable for borrowing amounts under £50,000.
Credit Card: Credit cards can be an excellent alternative to loans if you only need to borrow a relatively small amount and want the flexibility to use the credit when needed.
Credit cards usually have lower overall credit limits compared to loans but offer flexible monthly repayments. You can choose to make only the minimum repayment, which is often quite low, and decide when to pay off more of the debt at your convenience.
However, for larger borrowing needs, a second charge mortgage (secured loan) might be a more appropriate option.
