Best Lenders For Second Charge Mortgages
The term second charge mortgage refers to the second mortgage or loan a homeowner takes out against the same property. Unlike the first mortgage, or first charge mortgage, which is used to obtain the property, a second charge mortgage uses the property as collateral in return for borrowing a second, third, or fourth sum of money.
There are many reasons a homeowner might decide to investigate the possibility of a second charge mortgage or homeowner loan. They might require extra cash to fund necessary home improvements, ultimately increasing the property’s value. On the other hand, a second charge mortgage could be used to purchase a second buy-to-let property.
Whatever the reason, a second charge mortgage is a quick and effective way to borrow some extra money. Unlike a first mortgage and many other loans, a second charge mortgage is a rare avenue remaining open to homeowner applicants – even those with a low credit rating.
With plenty of lenders to choose from, it can be tempting to jump right in and get your hands on the money as quickly as possible. However, it’s a good idea to first consider a few options, compare competitive interest rates, and seek the professional guidance of an experienced mortgage broker.
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What Is A Second Charge Lender?
A second charge lender is the person, bank or building society who fronts the money loaned out for the second charge mortgage or second mortgage. Sometimes, the second charge mortgage lender will be different from the first.
There are many second charge mortgage lenders to choose from. Some are stricter in their protocol and require a certain credit score or a low enough debt-to-income ratio, whilst others are more flexible. Some second charge mortgage lenders, such as certain banks and building societies, will only work with existing customers.
Is it difficult to find a second charge mortgage lender?
Sometimes it’s easier for a homeowner to secure a second charge mortgage because it is secured against their existing property. For this reason, most homeowners can find at least one lender, even if they have a low credit score.
Alternatively, it can sometimes prove difficult to find a lender since second charge mortgages exist concurrently with the first mortgage – and the first mortgage gets priority. What this means is if the homeowner fails to meet their mortgage payments and the house is repossessed, the lender of the original mortgage is first in line for reimbursement.
Lenders of second charge mortgages take a risk when they agree to large loans, especially with customers with a low credit score or a high debt-to-income ratio.
Do You Need A Specific Lender For A Second Charge Mortgage?
While there are many second charge mortgage lenders who only work with this type of secured loan, you don’t need to use a specific secured loan lender.
Many UK establishments offer second charge mortgage options, including most high-street banks and building societies.
If you are uncertain about the type of lender you need or find yourself overwhelmed by the options available, speak to an experienced mortgage adviser.
What To Look For When Choosing A Second Charge Lender
When choosing between second charge mortgages, you should consider a few key criteria to secure the optimum loan.
These include:
- Interest rates
- Repayment period
- Available loan amount
- Early repayment charges.
The benefits of using a mortgage broker
A mortgage broker acts as the intermediary between the homeowner or customer and the lender. A mortgage broker is experienced and knows how to source the right mortgage for your unique requirements, and they know who to ask.
A mortgage broker will have access to a better deal than what is commonly advertised to the public. This means that by working with a mortgage broker, you can obtain a more preferable rate than if you simply approach the lender yourself.
Working with an experienced, LoanCorp mortgage broker when you take out a second charge mortgage will help to ensure that you get the maximum loan amount and most competitive interest rate possible for your financial circumstance.
Second Charge Lenders In The United Kingdom
There are lots of second charge mortgage lenders to choose from, and ultimately, the lender you decide to apply to for your loan might depend on your own personal and financial circumstances. If your credit rating is a little low, you will probably find that your choice of lenders is reduced.
On the other hand, if you have a low debt-to-income ratio with a reliable income and a high percentage of positive equity, you’ll most likely be able to select your preferred second charge mortgage lender from many available candidates.
Let’s take a look at six of the key second charge mortgage lenders operating in the UK. The list includes high street banks and building societies, as well as dedicated and specialist second charge mortgage lenders.
Santander
Santander offers additional loans for their current mortgage customers, and they offer other types of additional, secured loans for home improvements and debt consolidation. Their rates are competitive, but the better rates are only available through a mortgage broker.
To qualify for a secured loan with Santander, the homeowner must have never been declared bankrupt. Plus, your first mortgage and the ideal loan amount must be less than 85% of your current property value.
Santander offers variable rates depending on the customer and the reason for the loan. A standard Santander secured loan available to existing mortgage customers will be:
- Eligible for no early repayment charges
- A minimum of £5000
- 5-35 year loan period.
Halifax
Another household name in high street banking, Halifax can also be considered a reputable lender. While Halifax offers additional lending, they tend to prefer a personal loan over a second mortgage.
Halifax will offer personal loans and additional lending for home improvements, debt consolidation, and other debts and requirements.
Halifax will also consider additional lending by extending customers’ existing mortgages instead of lending a second mortgage altogether.
Pepper Money
A specialist second mortgage lender, Pepper Money offers a quick and straightforward application process for any homeowner looking to take out a second mortgage.
Pepper Money offers variable rates depending on the financial status of the intended borrower and the proposed use of the second mortgage loan. This lender will generally consider most applicants for a second mortgage, including those with bad credit history. They do stipulate that applicants must be homeowners with an existing mortgage though.
Fixed-rate, variable rate and discounted-rate second mortgage options are available through Pepper Money, so there is no one size fits all loan. However, applications should expect:
- A homeowner loan of £10,000 – £1 million
- A 3-30 year repayment period
- No early repayment charges
- Interest rates from 5.7%.
Paragon
Second charge mortgages are available from Paragon for existing customers only. While Paragon does offer a second mortgage-secured loan for customers with a stable income, they seem to be more selective, and homeowners will have to pass an affordability test and prove their positive credit score.
Paragon second mortgages are more accessible via a mortgage broker. In fact, customers who approach Paragon without a broker are likely to be turned away.
A homeowner who does successfully take out a second mortgage with Paragon can expect:
- A representative loan of £69,000
- A 20-year repayment period
- 4.69% rate, fixed for three years, then 4.30% variable.
West One
West One focuses exclusively on specialist lending, including second charge mortgages. West One will consider offering a standard, variable, or fixed-rate second mortgage or will alternatively take a more individualistic approach to meet the homeowner’s requirements.
It also offers residential second charge mortgages and dedicated buy-to-let mortgages. They accept applicants with a less-than-perfect credit score and those who are self-employed or with a fluctuating income.
A homeowner considering taking out a second mortgage with West One can expect:
- A loan amount of £2 million maximum
- Possible three-week completion
- An average 6.25% interest rate
- No upfront costs.
Step One Finance
Step One specialise in second charge mortgage-secured loans and offer a competitive interest rate dependant on the homeowner or applicant.
Step One is more open to applicants than many high street banks which often only accept existing customers or those with good credit scores. However, they will still conduct a thorough review of your monthly income and expenditure, including your debt-to-income ratio, to assess your affordability to repay a second mortgage alongside your current mortgage.
Step One cites equity as the predominant factor in deciding whether to accept an application for a second mortgage. And, as with all second mortgage lenders, the exact rates of the second mortgage will vary depending on the homeowner’s equity.
The average applicant can expect:
- A five-year fixed rate
- An average 6.65% interest rate
- £10,000 – £200,000 loan amount
- 6-30 year repayment period.
FAQs
Who is eligible for a second charge mortgage?
Any homeowner is technically eligible to apply for a second charge mortgage since they are using their property to secure the loan. The homeowner does not need to live in the home either; they just have to own the property to put it up as collateral.
Is it safe to take out a second charge mortgage?
The harsh truth? There is always some risk involved if you take out a second mortgage. If you miss mortgage payments on this type of secured loan, you run the risk of losing your property.
Is it difficult to get a second mortgage?
This depends on your circumstances, credit score, and debt-to-income ratio. If you have a stable income with a decent credit rating and a debt-to-income ratio of less than 40%, you should find it relatively easy to take out a second mortgage. If you have paid off very little of your existing mortgage, however, your choice of second charge mortgages will be limited.
Final Thoughts
There are several reputable lenders of second mortgages available to homeowners in the United Kingdom. If you have paid off enough of your current mortgage that your home equity outweighs the amount remaining, then you will have a wide variety of lenders to choose from, including some household names and high street banks.
Alternatively, a homeowner with a reduced credit score and little to no home equity will need to seek a specialist in second mortgages to find the right affordable loan for their financial and personal circumstances.
Regardless of your credit score, debt-to-income ratio, or even the amount of home equity you have, an experienced LoanCorp mortgage broker can help source the ideal second charge mortgage. A broker has access to deals and rates not available to the public, and they know which lender is the best fit for your loan affordability.
Contact us now for expert advice.