What is a second charge mortgage?

A second charge mortgage, sometimes called a secured loan, is a separate loan secured against your home that sits behind your existing mortgage. It’s a way to borrow money against your property without disturbing your main mortgage deal, which continues on its existing rate and terms.

How does a second charge mortgage work?

Your main mortgage is the “first charge” on your property, meaning that lender is repaid first if the home is ever sold. A second charge mortgage sits behind it, so that lender is repaid after the first charge lender, but before you receive any remaining proceeds.

Because both loans are secured on the same property, your home can be at risk if you fall behind on either one, not just your main mortgage. A second charge lender assesses the application separately from your main mortgage lender, looking at your income, outgoings, credit history and the equity available once the main mortgage is taken into account.

What is a second charge mortgage used for?

People usually consider a second charge mortgage to raise money for home improvements, to help a family member, for a large one-off cost, or to consolidate other debts, without changing their main mortgage deal. It’s often compared with a further advance from the main lender or remortgaging to borrow more; our guide on what a further advance is explains that alternative.

What is involved in applying for one?

A second charge lender will typically want:

• proof of income and outgoings, to check the extra borrowing is affordable alongside your main mortgage
• details of your main mortgage, including the balance and your payment record
• a valuation of your home, to work out how much equity is available once the main mortgage is taken into account
• your consent from your main mortgage lender, since most main mortgage terms require this before another loan can be secured on the property

Getting your main lender’s consent is a step people sometimes overlook. Most mortgage terms and conditions require you to ask permission before securing another loan against the same property, and a second charge lender will usually want to see this confirmed before completing.

Why might someone choose a second charge over remortgaging?

The main reason is usually to avoid disturbing a main mortgage deal that would otherwise carry an early repayment charge (ERC) if it were replaced early, or that has a rate the borrower wants to keep. A second charge mortgage leaves the main mortgage untouched, while still allowing extra borrowing secured on the property. Our guide on early repayment charges explained covers when an ERC would apply if you left your main deal instead.

It isn’t automatically the cheaper option overall, since a second charge mortgage is a separate loan with its own terms. Comparing the total cost against remortgaging or a further advance, rather than looking at either in isolation, is worth doing with an adviser. Our guide on remortgage or second charge mortgage sets out that comparison directly.

What are the risks of a second charge mortgage?

• Your home is at risk on two fronts. Falling behind on either the main mortgage or the second charge can put your home at risk, since both are secured against it.
• It adds to your total secured borrowing. Lenders commonly look at the combined loan to value across both loans when assessing further borrowing or a future remortgage. See how LTV affects a bad credit remortgage.
• Consolidating unsecured debt into it changes the nature of that debt. Credit card or loan debt that was unsecured becomes secured against your home, and a longer term can mean paying more in total even if the monthly cost looks lower.

If you’re thinking about a second charge mortgage to consolidate debts, our guide on remortgaging to consolidate debt explains this trade-off in more detail, and free, impartial advice is available from MoneyHelper, StepChange and National Debtline before you take on more secured borrowing.

Can a second charge mortgage be combined with your main mortgage later?

Sometimes. Once your main deal ends, or if a lender is willing to consider it, it can be possible to combine both loans into a single remortgage, which some people prefer for simplicity, having one payment and one lender rather than two. Whether this makes sense depends on the total amount owed, your equity, your credit history and the rates on offer at the time. It isn’t automatic, and both existing lenders would need to be redeemed as part of the process.

What changes if you have adverse credit?

Second charge lenders assess applications independently of your main mortgage lender, and some specialise in adverse credit, considering CCJs, defaults or a low credit score that might make a further advance or a new main mortgage harder to arrange. Criteria, and how much you can borrow, vary between lenders, so this isn’t a guaranteed route either.

If you already have arrears on a second charge, or you’re considering one alongside other financial difficulties, our page on remortgaging with arrears on a secured loan explains how that’s usually treated and what to check before taking on more borrowing secured against your home.