Last reviewed on 10th October 2023 by Martin Alexander (Mortgage Advisor)
As a homeowner, you can borrow more against your home with a second mortgage. In fact, this is called a second-charge mortgage. Taking on a second charge will increase your monthly repayments, so lenders will assess whether the loan is affordable.
Please note: If you want to buy a second property without releasing equity, read our article on second-home mortgages.
What is a second-charge mortgage?
A second-charge mortgage is a secured loan that uses your home’s equity as security. The loan is separate from your current mortgage but allows you to release equity. That said, you must repay the loan in addition to your current mortgage.
Second-charge mortgages are for homeowners who want to release equity without remortgaging. If you don’t fancy remortgaging and have equity in your home, applying for a second charge is an option.
As your home is being used as security, failure to repay the loan could result in you losing your home, so it’s certainly not something to rush into.
How does it work?
With a second charge, you’d have two mortgages, and they could be with separate lenders. You’d then make two mortgage payments each month rather than one.
You’ll need to have equity in your home. Most lenders require a minimum of 15% equity to qualify. For example, if your house is worth £100k and you have £85k left to pay your lender, you’d have 15% equity.
If you decided to move home, you’d need to pay both lenders. It’s something to consider, as you may have little or no money left for a deposit to buy your next home.
Why might I use a second-charge mortgage?
You might use a second-charge mortgage if:
- Remortgaging will cost you too much
- You’d like to keep your existing mortgage deal
- You’ve run into credit problems and can’t remortgage
- You have early repayment charges (ERC) from remortgaging
- You don’t want to extend your mortgage term
- Your current lender won’t allow you to release equity
How much can I borrow?
The equity you have is the largest factor in the amount you can borrow. Each lender also has different criteria for how much they’ll lend. For instance, Darlington will only lend a maximum of £30k, whereas TSB will lend a maximum of 20% equity. That said, there are other parts of your assessment that will determine the amount you can borrow, such as:
- The amount of equity you have in your property
- Your income and affordability
- Outstanding loans you already have on the property
- Your credit history
- The lender you’ve applied with
If you’d like to know the exact amount you’ll be able to borrow, you can speak to our advisors.
Can I borrow 100% of my equity?
Applying for 100% of your equity depends on whether the loan is affordable. Lenders use income multipliers of between three and five times your income and will assess your outgoings to see whether the loan is affordable. Having bad credit can also affect the amount you can borrow and can result in your application being declined.
Learn more: Can I get a secured loan with credit issues?
What are the pros and cons of a second-charge mortgage?
- You won’t have to pay any early repayment charges
- You can release equity without extending your mortgage term
- You can keep your existing mortgage if interest rates have gone up
- Applications are usually fast
- You can use your equity for home improvements or debt consolidation
- Many high street lenders offer second-charge mortgages
- You may be able to apply with your current lender
- You risk losing your home if you fall behind on your payments
- You’ll need to repay both mortgages if you decide to sell, which could leave you with a small deposit for your next home
- Interest rates tend to be higher for second mortgages
- Consolidating debt is a risk as you’re securing debt against your home
- Your current lender may need to provide consent and could decline
- Repaying two mortgages each month can be costly
Which lenders offer second-charge mortgages?
The lenders that offer second-charge mortgages include:
- TSB – Will only lend up to 20% of the property value if you have enough equity.
- Pepper – Accept applicants with enough equity.
- Darlington – Only lend up to a maximum of £30k.
- Aldermore – Will need to have a first charge on the home and only consider existing borrowers.
There are many more lenders that you may be able to approach. This is a snapshot of just some of the lenders that we work with. If you want to compare rates across several lenders, you can make an enquiry with an advisor.
How can I take out a second-charge mortgage?
There are a lot of lenders that offer second-charge mortgages, but you’ll need to meet their criteria. You’ll have to prove your ability to repay two mortgages and show that you have enough equity in your home.
You can speak to your existing lender, but they’ll only offer you their rates. Doing this puts you at a disadvantage as you might find a better rate with a different lender. Speaking to an expert can give you a better understanding of whether a second-charge mortgage is viable. The mortgage market has a variety of products, so it makes sense to consult a qualified specialist in this area.
Applying for a second mortgage on your own can result in you taking a loan that isn’t suitable. Furthermore, an advisor can find you the most competitive deals available. It’s helpful to compare key details such as fees, early repayment charges and rates, which advisors do daily. We can then guide you to a more informed decision on what to do next.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.