A second charge mortgage means taking out an additional loan that’s secured on your home, so your property ends up having two separate mortgages. It’s sometimes called a “second mortgage”.
You might consider getting one if you didn’t want to change your current deal but you needed extra cash. So, for example, you might have a great fixed-rate mortgage for five years and remortgaging would mean paying a higher interest rate for the whole amount. Or you might be locked into a deal and face a hefty charge for switching away from it early.
This guide will cover how second charge mortgages work, their limits and their risks, plus alternatives.
Your home may be repossessed if you do not keep up repayments on your mortgage.
A second charge mortgage is an additional loan secured against your home using the equity you have in it - the amount of your property that you own outright. It’s a type of secured loan that releases some of the equity you have in your home so you get extra funds without remortgaging.
Say you had a mortgage for 60% of the current market value of your home, the remaining 40% is your equity, also called your capital. A second charge mortgage is secured against that. It’s separate from your primary mortgage. Because a second charge mortgage is secured against your home, failing to keep up repayments could ultimately lead to repossession.
The interest rate for a second charge mortgage is usually higher because it’s more risky for the lender. That’s because if you don’t make your payments and your home is repossessed, the primary lender is first in the queue to recoup its costs and mortgage amount.
Second charge mortgages offer some flexibility in how you use the money - you could use the funds for home improvements or consolidating your debts, or covering a big ticket purchase like a new car.
If you're considering using a second charge mortgage to consolidate debts, it's important to remember that moving unsecured debts into borrowing secured against your home may cost more in the long run and could put your home at risk if you do not keep up repayments.
You usually have separate lenders for your existing mortgage and second charge mortgage. That means two separate monthly payments and different interest rates.
If you become unable to repay either the primary mortgage or the second charge mortgage, your home could be repossessed and sold. In this case, the primary mortgage lender takes priority in getting its loan repaid.
With a second mortgage, the maximum you can borrow depends on:
Your equity is the current property value minus your mortgage debt. So if the property’s worth £200,000 and you have a mortgage for £100,000, your equity is £100,000 (50% of the value). A second mortgage is secured against that equity.
The second mortgage lender will recalculate your loan-to-value (LTV) before lending. The LTV is the proportion of the value of your home that you are borrowing. If you wanted to borrow an extra £20,000, your LTV would rise from 50% (£100,000) to a combined 60% (£120,000) for a home worth £200,000.
The amount you can borrow will depend on your circumstances, the amount of equity available in your property, and the lender's criteria. Some lenders may limit borrowing based on a maximum combined loan-to-value (LTV). Check your home equity limit in our calculator.
Minimum loan amounts vary between lenders and products.
You’ll need to have some equity in your home to be able to get a second mortgage. You’ll also need permission from your existing mortgage lender. Crucially, you’ll need to be able to prove that you can afford to make both mortgage payments each month - for the existing and the second mortgage.
Lenders have to check that you can afford to make a second set of mortgage payments before they lend to you. This includes doing a “stress test” that you could still afford repayments if the interest rate went up.
Your lender will check your income, your employment status, existing debts like car loans and credit card repayments, and household expenses as well as your credit rating.
Check your borrowing limit with our calculator.
There’s no set credit score you need to qualify for a second mortgage as it’s more about the amount of equity you have in your home and what you can afford to repay each month.
A stronger credit history may help you access a wider range of products and more competitive rates. Some lenders may still consider applications from people with adverse credit, although this will depend on their lending criteria and your individual circumstances.
Whether a second charge mortgage is cheaper than an unsecured loan will depend on the amount borrowed, the repayment term, and the rates available to you.
It’s sensible to get your finances in good shape in advance - cancel any subscriptions you don’t need and don’t take on extra debt if you’re planning to apply for a second mortgage any time soon.
Find out more in our guide to applying with bad credit.
The setup fees and costs you’ll encounter usually include:
Second charge mortgage rates are usually higher than first charge mortgage rates: a lender is taking on more risk with a second charge mortgage because if you default on your payments, the first or primary mortgage is first in the queue to get repaid.
The rate you get will depend on how much equity you have in your home and the LTV of the combined loans - the higher the LTV, the higher the rate is likely to be. If you have a good credit score, you’ll likely get a better rate. The loan amount and the term of the loan can also affect the rate.
It’s always smart to shop around to compare the deals available as lenders have different approaches and criteria. And it’s worth comparing the overall cost with other options, such as a further advance on your existing mortgage.
Remortgaging (changing your existing mortgage to a new, larger one) and getting a second charge mortgage both release equity from your home so you get extra funds. But the overall cost of each can be very different. Second charge mortgages typically have higher rates. Remortgaging can involve a hefty early repayment charge (ERC) unless you’re at the end of your deal.
Check with your lender if there’s an ERC to pay before you decide what to do, and find out if there’s a way to get a further advance on your existing mortgage, as this may also be an option. You can also talk to your mortgage broker if you’re not sure.
If you have a hefty ERC, remortgaging might be less attractive than a second charge mortgage - but it will depend on the overall cost.
Here’s an example. ERCs are typically 1%-5% of the outstanding amount of your mortgage. If you have a mortgage for £100,000 and the ERC is 5%, you’ll typically be allowed to repay 10% (if you have a fixed-rate deal) and then you’d have to pay the 5% charge on the remaining £90,000, which would be £4,500. Then to get a new mortgage, you’d face the usual fees (administration, valuation, legal) to get a new deal.
With a second charge mortgage, you’re just paying the setup fees (arrangement fees, property valuation and legal fees, though sometimes these can be lower than with a main mortgage). But the interest rate may be higher.
Another reason to stick with your existing deal and opt for a second mortgage is if you’re on a great fixed rate and remortgaging would mean losing it. In this case, you might consider a second charge so you can access more funds without having to put your whole debt on a higher interest rate.
A second charge mortgage may be worth considering if:
Remortgaging could suit you if:
Find out more in our guide to remortgaging.
Taking out a second charge mortgage isn’t something you do lightly. It could affect your future ability to remortgage. It’s important to see a second mortgage as part of your whole financial picture, not just a quick way to access extra cash.
Before using a second charge mortgage for debt consolidation, consider the total amount repayable over the life of the loan. Converting shorter-term unsecured debts into longer-term borrowing secured against your home could increase the overall cost of borrowing.
If you only need to borrow a small amount, you’ll almost certainly be better off going for a personal loan or credit card with a higher interest rate but over a shorter time. Either way, it’s a good idea to talk to a broker before you sign on the dotted line.
It’s best to talk through your situation with a regulated broker who can advise you on your options and check what might be available to you. You’ll likely need to gather documents such as payslips and your current mortgage details.
We don’t do second charge mortgages at Habito by Monzo, but if you need one, there are specialist second charge mortgage companies out there who should be able to help. A regulated mortgage adviser can help you compare the costs, risks and alternatives available before deciding whether a second charge mortgage is suitable for your circumstances
Your home may be repossessed if you do not keep up repayments on your mortgage.
Habito by Monzo is a mortgage broker, not a lender. We’re authorised and regulated by the Financial Conduct Authority. This content is intended for general guidance and is not a substitute for personalised mortgage advice.
Yes. Your current lender can refuse a second charge if it thinks this will increase the risk of it losing money if it had to repossess your home, in the event you stop making mortgage payments. This could be because the lender thinks you won’t be able to afford the additional payments - this is likely if you’re already in arrears - or because it thinks there’s not enough equity in the property to cover the mortgage debt and costs if it had to repossess your home.
If it agrees to a second charge mortgage, it must sign a “deed of postponement” to set out the order of priority of the two mortgages.
Yes, but just like with your primary mortgage, there’s likely to be an early repayment charge (ERC). This will depend on the terms of your deal.
Not only will your credit rating be damaged, but defaulting (not making your repayments) could lead to your home being repossessed by the second mortgage lender. If the property gets sold, the primary mortgage lender gets paid back first.
If you’re looking to borrow a few thousand pounds, it’s definitely worth considering an unsecured loan. These are usually capped at between £25,000 and £50,000. The interest rate is likely to be higher than with a secured loan, but your home isn’t at risk.
Lenders see certain types of home construction as higher risk: timber frames, concrete and thatched roofs, for example. That means it’s usually harder to find a lender which will offer you a second charge mortgage and it might involve a specialist valuation. There may be second charge deals available, though.
A second mortgage won’t stop you from selling your house, but it will affect the process. You’ll need to be able to clear both mortgages from the proceeds of the house sale. If the sale price falls short (negative equity), you’re liable to make up the difference.
Application timescales vary between lenders and individual circumstances, but it can take several weeks from application to completion.. It can be delayed if you have to wait for the primary mortgage lender to consent, or if the valuation visit is delayed or if you can’t get all your paperwork together.
An interview with Halloween royalty, Ray Villafane.
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