Also known as a secured loan, a second charge mortgage allows consumers to take out large loans and secure them against their home. These loans are normally at a much greater value, with many offering a minimum sum of £25,000 and with maximums that can be in the millions. Furthermore, second charge mortgage lenders may have a lower threshold for accepting borrowers when doing credit checks on borrowers. As the loan is secured against the borrower’s property, second charge mortgages come at great risk and, if repayments can’t be made, can result in the borrower losing their home. As such, borrowers should consider their financial situation carefully before taking out a second charge mortgage.
Commenting on the rise in second charge mortgages, Eleanor Williams, finance expert at Moneyfacts.co.uk, said: “There are a number of reasons that may play into the increase in second charge mortgage borrowing; some consumers may be tied into their current mortgage with an early repayment charge penalty but still have a need to release funds from the equity in their home, and others may have found that they are not be able to match their existing mortgage deal by remortgaging their borrowing as a whole – potentially facing higher interest rates or less-appealing deals when borrowing at a higher loan-to-value.
“It may also be the case that a borrower no longer meets the tighter criteria now applicable across a lot of the first charge mortgage market, in relation to either their credit rating possibly having slipped since they took their current mortgage deal out or perhaps due to changing circumstances. Therefore, if a borrower no longer meets a lender’s affordability requirements, they may find more flexibility in the second charge market.
“Of course, taking on a second mortgage is not something to be taken lightly, and speaking with a qualified independent financial adviser to fully understand the options and risks would be advised.”
