How Second Charge Mortgages Can Help You Borrow Without Remortgaging 

A second charge mortgage is a loan that is secured by your home's equity, as well as your existing mortgage. This type of loan allows homeowners and landlords to borrow further monies without having to remortgage. In nature, second charge mortgages are a highly flexible and efficient way to borrow money while keeping your existing mortgage terms intact. In this article, we’ll explore how second charge mortgages work, their benefits, how they can be used, and how they provide flexible financing options for borrowers to leverage their property without refinancing their main mortgage.

Residential vs Buy-To-Let (BTL) Second Charge Mortgages

There are two types of second charge mortgages: regulated and non-regulated 

• Regulated Second Charge Mortgages: A common way for homeowners to raise additional money against their primary residence for personal use such as debt consolidation, home improvements, or other personal expenses.
• Non-Regulated Second Charge Mortgages: Typically taken by property owners who desire to release capital from their investment properties. The common uses of the released capital are financing property renovation, buying new rental properties, or any other additional expenditure. 

 

Second Charge Loan-to-Value (LTV) Ratios and Second Charge Mortgage Interest Rates

The Loan-to-Value (LTV) ratio is one of the most important features of second charge mortgages. It determines the proportion of the value of the property that you can borrow. Enness has access to private lenders who can offer higher LTVs than regular banks. The ratio itself dictates how much you can borrow, which in turn influences the interest rates you will be offered. Generally speaking, the greater the LTV, the greater the interest rate because there is more risk to the lenders.

For residential second charge mortgages, homeowners can borrow even up to around 85% of the property value, tapping into significant equity, depending on the lender. However, the higher percentage of equity you have in a property, the higher you might be able to borrow. We work with some of the top lenders who offer competitive second charge mortgage rates. The rates vary based on several factors, including the type of property (residential or BTL), LTV, and borrower’s financial profile.

 

Regulated vs Unregulated Second Charge Mortgages

Here at Enness, we guide you through regulated and unregulated second charge mortgages to achieve a solution most appropriate for your situation. A regulated second charge mortgage pertains to second charge mortgages for residential purposes and is covered by stringent consumer protection laws. This ensures transparency for homeowners and streamlines the process so that the right party is being dealt with fairly. On the other hand, unregulated second charge mortgages tend to be for investment properties. The loans will have more adaptable terms and conditions and options of borrowing, but less consumer protection, making them more suitable for landlords or businesses renting out property.

 

Maximum and Minimum Loan Sizes

Enness works with lenders who can accommodate a wide range of loan sizes.

• Minimum loan size: Enness offers a minimum loan size of £250,000, though we can go as low as £50,000 in some circumstances.
• Maximum loan size: There is no maximum loan size. We have lenders that can deploy hundreds of millions in a single transaction, depending on the borrower's requirements and the specific deal.

Interest rates can start as low as around 6.5% p.a. for some borrowers, though depending on the gearing required and the risk profile, rates can rise to around 25% p.a. Enness can quickly assess your loan requirements and advise you on the rate that would apply to you. The lender will consider different amounts of loans on a case-by-case basis, particulary for larger properties and more complex situations. 

 

How and Why People Use Second Charge Mortgages

Second charge mortgages are used for various reasons, such as settling tax obligations or other financial debt obligations like consolidating high-interest debts into one lower payment. Second charge mortgages can also be used for covering personal outlays like education fees or even home improvements and repairs. They provide quick and easy access to cash without needing to remortgage.

However, arguably the strongest appeal is flexibility. Borrowers can borrow without disrupting their existing first charge mortgage. A large proportion of clients remain on 5–10-year fixed rates. If they need more money, a second charge mortgage is an attractive option, as remortgaging would cost them early repayment charges (ERC) and a loss of a good rate.

For example, we helped one client with a mortgage of approximately £4 million over their primary residence. The borrower also had a second loan against the property that had reached its term and carried a double-figure interest rate. The borrower sought a solution to refinance the second charge loan at a lower interest rate without disturbing the first mortgage. We sourced a new second charge lender who replaced the old loan with one at a significantly lower interest rate, offering a satisfactory fixed term and competitive fees. This solution allowed the borrower to save on interest while keeping their original mortgage intact, penalty-free. You can read the full case study here.

 

The Process for Gaining a Second Charge Mortgage

The process is relatively straightforward, and Enness will guide you through it, so you are properly informed. Typically, the first charge lender's approval is required, though this is usually quick (can be within a week). Some lenders can complete the loan within a couple of days, while others may take more time depending on the complexity of the case. Lenders also use AVMs (Automated Valuation Models), which are computer programs that estimate a property’s value using real estate data. This speeds up the entire process by quickly assessing the property’s value. The process typically takes 2 to 3 weeks, from application to completion, and is dependent on the specifics of each individual application.

 

Getting Started

Enness has experienced professionals ready to guide you through the process and help you find the most appropriate second charge loan that meets your needs. It’s not always easy to navigate the market, so having an expert assist you in finding the best deal can save time and ensure you’re getting the most suitable option. Contact us today for more information.