Second Charge mortgage FAQs

What is a Second Charge mortgage?

Why are Second Charge mortgage interest rates higher than traditional (First Charge) mortgages?

How can I explain the costs of a Second Charge mortgage?

Are Second Charge mortgages regulated?

How flexible are Second Charge mortgages?

Are Second Charge mortgages only for adverse credit borrowers?

Can I trust Second Charge mortgage lenders?

Why choose a specialist finance distributor instead of going direct to the lender?

What is a Second Charge mortgage?

A Second Charge mortgage is a secured loan that allows the borrower to use equity in their existing property as security for the lender. The primary mortgage taken out by a borrower is known as a “First Charge”, so these secondary mortgages are referred to as “Second Charges”.

Why are Second Charge mortgage interest rates higher than traditional (First Charge) mortgages?

If your client defaults on their mortgage, the First Charge takes precedence over the Second Charge, which means that the Second Charge lender may not be left with enough residual equity from the repossession to repay their loan. As a result of this increased risk, they recover the loan through higher monthly interest rates.

How can I explain the costs of a Second Charge mortgage?

The flexible nature of Second Charge mortgages presents a higher risk to the lender, which is reflected in the interest rates. Also, the case has to be transacted by a specialist broker who will incur processing costs. However, with our expert service, we will be able to ensure the product is the best available for your client.

Are Second Charge mortgages regulated?

Yes, Second Charge mortgages are regulated by the FCA and practices adhere to the same rules as the First Charge market. They are no different from a First Charge mortgage except they rank second on the title deed of the property.

How flexible are Second Charges mortgages?

Second Charge mortgages are extremely flexible in their range of criteria, speed and uses, which has proven appeal to a wide range of borrowers. As an ideal way to raise funds from existing equity without disturbing their First Charge mortgage, Second Charges can be accessed by both individuals and landlords, are mostly without ERCs and offer loan sizes from 6 times income. They are used for a variety of reasons such as debt consolidation, home improvements, tax debt clearance, property deposits, school fee payments and business financing – in fact, any legal purpose. By securing against a property, the borrower will gain the ability to consider longer-term borrowing that is not available through unsecured lending (which is typically restricted to a maximum of 7 years on a repayment basis). An unsecured loan is typically capped at £25,000 – with a Second Charge mortgage, borrowers will have the ability to borrow more than this, typically up to £2 million (subject to the equity in their property).

Are Second Charge mortgages only for adverse credit borrowers?

This is a common misconception. The majority of people that apply for Second Charges are prime credit with high equity in their property. It is either not possible for them to obtain lending through traditional finance due to their circumstances or using a Second Charge could help them avoid disturbing low-interest rates on their existing mortgage and/or avoid ERCs.

Can I trust Second Charge mortgage lenders?

Lenders that operate in the Second Charge market answer to the same regulator as the High Street lenders, the Financial Conduct Authority (FCA) and must abide by their rules and regulations. Currently, High Street lenders do not offer Second Charge products as they require a fully advised sales process, that they cannot currently accommodate or have little desire to do so.

Why choose a specialist finance distributor instead of going direct to the lender?

Using an established specialist finance distributor such as Enterprise Finance has multiple benefits. We’re a one-stop-shop with nearly 20 years’ experience of specialist lending. Our large business volumes mean we are close to lenders, so we’re sometimes offered rates that other providers and intermediaries can’t access. We also make your life easier by taking your client’s application from the initial enquiry stage all the way through to completion. You can choose to be as hands-on or off in this process as you wish.

Do you have any further questions about Second Charge mortgages? We can help. For more information, drop us a line or give us a call on 020 8731 5333.

Second charge mortgages, explained