If you’re a homeowner and you’re looking for an alternative to remortgaging, a second charge loan might be an option for you.
In this blog, we’ll cover:
- What a second charge loan is
- How second charge loans work
- Why you might want to choose a second charge loan
- How to decide whether this type of loan is right for you
You’ll also learn about the application process and the requirements for a second charge loan.
If you need more advice about second charge loans or loans in general, we have a dedicated Help & Advice page to help you learn more.
What is a second charge loan?
A second charge loan is a way to borrow money using your home as security. It is also commonly known as a second mortgage or a homeowner loan.
This loan sits behind your main mortgage and means you will have two separate loans to repay against your home. If you sell the property, any proceeds go towards paying off the primary mortgage first. The second charge lender then receives payment once the initial mortgage has been paid off in full. If the property sells for less than you owe, then you will still need to repay the balance and any interest.
How do second charge loans work?
A second charge mortgage allows you to use any equity you have in your home as security against another loan. Equity is the percentage of your property owned outright by you, which is the value of your home minus any mortgage owed on it.
The loan amount, terms and any interest rates are affected by several factors, including:
- Your property’s value
- The remaining mortgage amount
- Income and affordability checks
- Your credit history and score
Secured homeowner loans could offer larger loan amounts than unsecured loans because they’re backed by equity in your property.
Why take out a second charge loan?
Second charge loans are commonly used as an alternative to remortgaging your property. You may want to consider a second charge loan rather than remortgaging it if:
- Your credit score has changed since your initial mortgage was agreed.
- It may be a cheaper alternative to remortgaging
- Your finances have changed, and your mortgage interest rates have risen
- Your current fixed rate mortgage has early repayment charges
- You have an interest only mortgage
What could second charge loans be used for?
A second charge loan is a versatile option for homeowners with a wide range of possible uses.
Home improvements and repairs
A second charge loan could help fund emergency repairs or home improvements that add value to your property. This offers homeowners a way to improve their living space without having to remortgage. Home improvements could include anything from home extensions to loft conversions, bathroom renovations and solar panel installations.
Consolidating debts
Some people use a second charge loan to consolidate credit into one single monthly repayment. This may help borrowers manage finances and reduce the number of outgoing payments in a fixed period.
Please note that converting a personal loan or credit into a secured loan means your home will be used as security. And you could be at risk if you do not keep up with repayments.
Large expenses
You may also use a second charge loan to cover financial expenses, like:
- Wedding costs
- Education expenses such as tuition fees
- Unexpected medical bills
- Vehicle or property purchases
What are the advantages of a second charge loan?
There are a number of factors that could make a second charge loan an appealing option:
Keep your existing mortgage
The biggest selling point of a second charge loan is that you’re able to keep your current mortgage arrangement.
This could be a good option if you have:
- A low fixed rate mortgage
- Early repayment charges
- Competitive mortgage terms
With this loan solution, you avoid remortgaging and add another loan to your property instead.
Larger loan amounts
As this loan is secured against your property, you could borrow a higher loan amount compared to other alternatives, like personal loans.
Flexible repayment options
Many providers offer flexible repayment terms for second charge loans from 3 to 20 years. This helps borrowers spread the cost and repay over their agreed term.
Potential higher approval rate
Borrowers who have been rejected for other loans could be more likely to be approved for this type of loan. This is because there is security tied to a second charge loan, which means less risk for lenders.
Remortgage or a second charge loan: which is best?
If you’re considering a second charge loan or remortgaging your property, here’s how to decide which type of loan could work for you.
Remortgaging may be the best choice for you if:
- Mortgage rates have lowered greatly
- Your fixed term has ended
- You have no early repayment penalties
- You have a good credit score
A second charge loan may be better if:
- You have a competitive mortgage rate
- Your mortgage has expensive early repayment fees
- You’re not able to remortgage due to credit issues
Can I apply for a second charge loan?
In order to qualify for a second charge loan with us, you need to meet the following criteria:
- Own a residential property
- Be aged 21-70
- Have proof of income
- Meet affordability checks
- Have sufficient equity in your property
Every lender has different requirements when applying for a loan. It’s important to check their terms, credit score requirements and affordability criteria to ensure you find the right match.
How much can you borrow with a second charge loan?
The amount you’re able to borrow with a second charge loan depends on a number of factors, including:
- The value of your property
- Your existing loan balance
- The loan-to-value ratio
- Your income and expenses
- Your credit score
Here at Evolution Money, we offer home improvement and second charge loans from £5,000 to £105,000, with repayment terms between 3 and 20 years. With our second charge loans, there is a mandatory reflection period of 7 days between receiving your Binding Mortgage Offer and signing the Legal Charge document. This gives you time to consider your loan options.
It’s important to note that the amount you’re able to borrow also varies between lenders and is often decided using a percentage value of your property’s value.
How to apply for a second charge loan
When you apply for a second charge loan, the application process will vary depending on the lender you choose. This is what to expect when you apply with Evolution Money:
- Check your eligibility using our online form. This will show you how much you could be entitled to.
- We’ll talk to you about your finances and give you a quote based on your credit score and loan requirements.
- Your application will begin with a 7 day review period, where all your information and documents are reviewed.
- After 7 days, if you’re approved for a second change loan, we’ll send you an agreement to sign.
- You’ll then have a 7 day consideration period to review and agree to these terms.
- Once you’ve agreed and signed all the paperwork, you’ll get your money via Direct Debit.
Second charge loans made easy with Evolution Money
By now, you hopefully have all the information you need to determine if a second charge loan is the best option for you. Check your eligibility with Evolution Money today without affecting your credit score and see how much you could be entitled to.
Whether you’re making home improvements or bringing repayments together, you could borrow between £5,000 and £105,000 with repayment terms ranging from 3 to 20 years.
For more information on second charge loans or to start the application process, call us today on 0161 814 9158.
All loans are subject to status and eligibility. Available to UK homeowners aged 21 or over. Terms and conditions apply. Not all applicants will be accepted.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it.
If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
Representative 17.46% APRC (Variable)
For a typical loan of £23,120 over 120 months with a variable interest rate of 17.46% per annum, your monthly repayments would be £442.07. This includes a Product Fee of £2,312.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £53,047.80. Annual Interest Rates range between 8.6% to 27.87% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
