Capital Raising / Second Charges
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About second charge loans
Second charge loans are often referred to as second mortgages because they have secondary priority behind your main (or first charge) mortgage. They are often used as a way to raise money against the equity in a property when it is not possible or preferable to increase the first mortgage.
A second charge mortgage allows you to use some of the remaining equity you have in your home as security against another loan. It means you will essentially have two mortgages on your home.
These loans can be arranged on a variety of property types including your own home, a Buy-to-Let property and a commercial property. They can be arranged both on a long term basis e.g. 25 years or on a short term ‘bridge’ basis of say up to 12 months.
Why a second charge loan?
The following are some examples of how our clients have used second charge loans:
- Client A had some credit problems after taking out his first mortgage. He wished to raise money against the equity in his property, but remortgaging meant that he would end up paying more interest on all of his mortgage. Taking a second charge loan meant that he could keep the competitive rate on his first mortgage.
- Client B had a first mortgage with a high early repayment charge. It was cheaper for him to take out a second charge mortgage rather than to remortgage and pay the fee.
- Client C wanted to borrow more on her Buy-to-Let property, but the rental income was not high enough to meet a standard lenders affordability requirements. An equity second charge loan was able to be granted. As there are no monthly payments to make, this lender did not require the rental income to be higher.
What if you move house?
If you sell your home, you could pay off your second charge mortgage at that point. It could be possible, subject to the lenders agreement, to transfer it to a new property.
To take out a loan of this type, you will normally need to seek permission from your first mortgage lender. Most lenders will allow this but some lenders do have restrictions. It is worth calling your lender to check their policy before proceeding with a second charge application.