Second Charge Loans or Equity Loans enable you to release money from your investment property? We can help:
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 further 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 buy to let property.
Second charge 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 is some examples of how our clients have used second charge loans
- Client A had some credit problems after taking out his first mortgage. He wishes to raise money against the equity in his property, but remortgaging meant 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 second charge loan, 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.
Second Charge Equity Loan
There is also a new type of second charge loan called an ‘Equity Loan’ These second charge loans are unique as you have no monthly payments to make. Instead, you give up a percentage of the future growth in value of your property.
A Second Charge Equity Loan is like any standard second charge loan, which means your existing mortgage will remain in place on the same terms that you have with your current lender. Most lender will agree to this, but there are a couple who don’t so it may be worth a quick call to your lender to double check.
When you take out your loan, the amount you borrow is expressed as a % of the current value of your property. For example, a loan of £40000 with a value of £200000 would be a 20% equity loan.
Whilst you have your loan, there are NO MONTHLY PAYMENTS TO MAKE!
When you repay your loan, you will have a choice of a fixed or indexed tracker product that will determine how much you will need to repay at the end of the mortgage term.
Initial value: £200,000
Initial loan: £40,000
Initial loan %: 20%
Fixed rate product : 7.25% interest rate
Loan term: 3 years
TOTAL TO REPAY: £49,686*
* £40,000 plus compound interest of £9,686. Interest is calculated daily and compounded monthly.
You can take a loan for up to 5 years for a Buy to Let or Residential loan (high net worth individuals and homeowners who want to borrow for business purposes) but you can pay this off early should you wish, subject to an early repayment charge.
The loan needs to be repaid before the end of the term and you can do this by refinancing to another lender if you qualify, or selling the property.
If you have concerns that your property may increase at a high rate, for example if the property is located in London, or another hotspot, there is another version of the product available. This is linked to the Halifax National Price Index rather than your own actual property value, which in some cases can be more preferable.
If you would like a bespoke quote on this product which will provide you with all the costs, fees and terms or find out about a standard second charge loan please contact us.
If you would like to find out what mortgage options are available to you please call one of our experienced mortgage advisers on 01708 676111, or send us a message using the form below.