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Secured loans (second charge mortgages) guide

Category: Loans
Author: Tim Leonard
Updated: 30/03/2017

A secured personal loan, also known as a second charge mortgage, allows you to borrow a lump sum of money which is secured against a property.

The property is secured by the lender by way of a 'second charge', which ranks behind your main mortgage (which is held on a 'first charge' basis). This is a legal arrangement and is registered with the Land Registry.

You can use the money for whatever you want (provided it's not illegal or for commercial gain), but second charge mortgages are commonly used to fund home improvements or large purchases (such as buying a new car), or to consolidate existing debts.

Regular monthly repayments must be made throughout the term of the loan, which can generally be between five and 25 years.

The selling and administration of first charge loans has been regulated by the Financial Conduct Authority (FCA) for some time. Second charge loans are now also regulated by the FCA and are subject to exactly the same rules as regular mortgages. This means you will need to be able to demonstrate that you can afford to repay both the first and second mortgages, with room to spare.

Who is a secured second charge mortgage suitable for?

Secured loans are for those with an existing mortgage who want to borrow larger amounts of money than standard personal loans can offer, usually up to £250,000. Borrowers tend to have built up equity in their homes that they can use as security against the loan.

What should I look for when taking out a second charge mortgage?

There are a number of catches and things you need to understand before you commit yourself to this type of secured loan, including:

  • The 'second charge' on your property means that if you default on a secured loan, the lender can ultimately take you to court and order a house repossession. The first charge lender gets paid back first, and the second charge lender gets what's left, up to the value of the outstanding debt.
  • Second charge mortgage interest rates are usually variable, which means it's difficult to budget as the rate could go up and down. If you've also got a variable rate mortgage, you might get hit twice if rates go up, so make sure you can afford it.
  • Consolidating debt is usually seen as a last resort for homeowners, but it can be a good way to get you out of a hole in the short term. Remember, if you lower your monthly repayments in return for a longer loan period, you'll end up paying more in the long term.

What Next?

Compare secured loans from £3000 to £100,000 with our partner Loans Warehouse

If a secured personal loan isn't for you, compare the best unsecured personal loans on the market using our loan calculator. Remember that most unsecured personal loans have a maximum borrowing amount of £25,000.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.