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MailOnline request on second charge mortgages

Journalist: Frances Ivens, Telegraph

ended 14. February 2023

Request from MailOnline property  journalist:

Are second-charge mortgages a good way to borrow money? How do rates on second charge mortgages compare to primary loans on property?

What should you consider when looking at getting one? Where is the best place to go for advice?

8 responses from the Newspage community

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Jonathan Burridge
Founding Adviser at We Are Money
Second charges can be an appropriate solution, however with broker fees of up to 5% or £5,000 and lenders fees of typically 2% (both of which are frequently added to the loan) the one-off costs can make the cost of a second charge so high it simply rules it out. Second charges are typically limited distribution via packagers or master brokers, however, the process is well within a competent adviser's ability to arrange and platforms like 27 Tec have the capacity to carry the products. We will not see the popularity of 'seconds' increase until there is wider direct access for intermediaries and the punitive costs of arranging them are addressed.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Second charges have increased in popularity since interest rates started going up. If a borrower as a mortgage on a very low fixed rate they won't want to remortgage that lending in order to borrow additional, so they could opt for a second charge and keep their super cheap lending in place. Only the additional loan will be on the prevailing rates. This is also common if someone has a flexible mortgage with attractive terms.

Of course, the more common reason people opt for second-charge lending is the slightly more relaxed view of credit history. The higher rates are due to factors in lending risk for some customers, and if you have debt and want to consolidate this, a second charge could be a good option. A lot of high street lenders take a dim view on borrowing for debt consolidation.
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Justin Moy
Managing Director at EHF Mortgages
We have completed more Secured Loans this year than the whole of 2022, and we are only partway through February! Our clients have managed to secure better rates on the bulk of their mortgage through a Product Transfer or a legacy low fixed rate, and then top up the borrowing needed with a secured loan. Only that top-up is on a much higher rate, not the whole mortgage. Also, the affordability calculation is more advantageous with a secured loan compared to a remortgage, so it gives some great scope for repaying expensive credit. Always check on the terms your mortgage lender will offer for a further advance, and use a mortgage broker that can either advise on secured loans, or has a partner firm that specialises. Rates start from as low as 6% with some providers.
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Aaron Strutt
Product and Communications Director at Trinity Financial
Most lenders have tightened their affordability rules since the base rate started to increase, which means they are providing smaller mortgages to new and existing customers.

When borrowers call their lender to ask for additional cash for a new car or home improvements, they are consistently told the computer says 'no'.

Second charges are often the only way homeowners can borrow money for home improvements or restructure their credit cards or loans to make them more affordable.

Our brokers tend to recommend second charges to borrowers who want to lower their costs when they have high-interest rates on their credit cards and loans, but also have high early repayment charges on their mortgages. They also can't remortgage to consolidate their debt.
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Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
Second charges are a valuable option to consumers who are looking beyond what the traditional mortgage market will provide.

Borrowing up to 100% LTV can be achieved, credit repair options allowing customers to reinstate their credit worthiness, and debt consolidation remains an option where the mortgage market is frankly unforgiving.

Whilst rates are higher than a typical mortgage, they usually provide a solution to a problem that could not otherwise be met., with customers benefiting ultimately.

We have been advising and arranging second charge mortgages for over 7 years now, and it has become an integral part of our business.
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Chris Sykes
Technical Director and Senior Mortgage Adviser at Private Finance
Second charges are a tool to be used in certain circumstances. The reason we are going to see a lot of them in the next 3-4 years is that for people with the historic rates in the 1 and 2%s wanting more money for something like an investment opportunity, to do an extension or other home improvements, etc it will often make more financial sense (if they cannot get a further advance from their current lender) to borrow on a second charge then it will to remortgage elsewhere. For example, if you have £600k on 1.5%, and need to borrow another £100k for works and that comes at 6.5%, the blended rate you are paying for the debt then becomes circa 2.15%, rather than a remortgage which would come in around 4-5%. This may be where their current lender is now stricter on affordability and will not lend that additional £100k.
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Gary Bush
Financial Adviser at MortgageShop.com
As a company that spent its first 20 years avoiding second charge mortgages, we have since learnt that there are indeed some circumstances where they are the only route. For example, there may be a time-sensitive situation where a standard remortgage or further advance will take too long, a criteria situation where at this point a borrower isn't suitable for a standard mortgage, or any number of other variables that make a secured loan the only option. Rates are more expensive, but at times when an opportunity needs to be seized or a timescale met they can help greatly. In our opinion, second mortgages should only be arranged by advice firms that can demonstrate access to the whole market of lending providers on an impartial basis.
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Amit Patel
Adviser at Trinity Finance
A second-charge mortgage enables a borrower to borrow money, whilst leaving their existing mortgage in place. The second charge lender will take a legal charge over your property, in the same way, a mortgage provider does. This will be removed once the loan is fully repaid.

The rates and arrangement fees will tend to be higher than traditional 1st charge mortgages as the 2nd charge lender will be taking on more risk.

As always it's crucial to speak to a broker because only specialist lenders offer 2nd charges. In addition, you will benefit from their expertise and industry knowledge that you need to find a suitable second-charge deal.