A second charge mortgage is a loan that uses the capital/equity of the borrower’s home, as collateral. To simplify it, the loan amount is based on the difference between the value of the property and the amount owed on the first mortgage.

As we’re in the depths of the post-pandemic era, we’re seeing an increasing number of homeowners using second charge mortgages for a variety of uses. Whether its debt consolidation, home improvements or even paying off tax bills second charge borrowing is being used as a solution for homeowners on almost all property types. Data shows that second charge mortgage lending to UK consumers grew 17% year-on-year in the first half of 2024, recording the fastest growth rate of any other market segment. It is 27% higher than the £2.9bn of lending during the equivalent period before the pandemic.

As with all loan and mortgage types, second charge lending can be a helpful financial tool, but it comes with both advantages and disadvantages. Read on as we outline the pros & cons before deciding on whether it’s right for your client’s case.

Second Charge Mortgage Pros

Fast funding – Without remortgaging and disturbing the terms of the first mortgage, a second charge loan from application to funding can be done within a few weeks.

Ultimate flexibility – Providing a lifeline for borrowers who have been rejected elsewhere, especially for homeowners with a low credit score or adverse credit.

Larger loans – Due to the loan being secured against the borrower’s property, lenders are more likely to offer a larger loan compared to unsecured borrowing.

Wide product choice – A range of options are available including fixed and variable rates and a choice between capital and interest-only repayment types.

Second Charge Mortgage Cons

Risk of repossession – If your client fails to make monthly re-payments, they risk having their property repossessed as well as extra damage to their credit file.

Rates & fees can be high – Fees and interest rates are generally higher on second charge loans than first charge mortgages but are still lower than unsecured loans.

Complex application process – Can sometimes be time consuming as your clients first charge lender will need to consent to an additional charge being placed on their home.

LTV limitations – The amount your client can borrow is limited by the equity in their property. If the property value falls, this could affect the borrowing capacity.

The most important thing to consider is whether a second charge loan will benefit your clients current and future circumstances overall. It can be risky for your clients to place an extra charge on their property, and can be quite complicated, if you don’t have the knowledge or expertise in the second charge lending market.

That’s where we come in. At Crystal Specialist Finance, we aim to make the complex simple, on whatever basis you prefer to work. Whether it’s packaged or referred, our specialist team are on hand to support in getting those deals done. Call us on 01827 337710 or enquire through our CrystalHUB.

Trust in Crystal, we’re the clear choice.

Find out more about second charge loans here.