Surge in second charge mortgage lending

Christina Hoghton
Written By:
Christina Hoghton

Homeowners are choosing to improve rather than move, and taking second charge deals to fund extensions and other home improvement projects

The second charge mortgage market experienced a rise in new business volumes of 24% in February, according to the Finance & Leasing Association.

It recorded 2,163 new second charge mortgage agreements over the month worth £98m.

Fiona Hoyle, head of consumer and mortgage finance at the Finance & Leasing Association (FLA), said: “In February, the second charge mortgage market reported its strongest rate of new business volumes growth since May 2017.

“The popularity of second charge mortgages continues to grow as people opt to improve, rather than move.”

What is a second charge mortgage?

A second charge mortgage is a loan borrowed against your home, on top of your existing mortgage.

A mortgage is the ‘first charge’ against your home. As the loan is secured against your property, you need to have enough equity in your home to support the loan.

If you were ever to fall behind on your repayments and, ultimately, have your home repossessed and sold, the ‘first charge’ mortgage lender would get their money back first, and the ‘second charge’ lender would be paid back after the mortgage and potentially other secured loans have been repaid.

As the second lender is taking a higher risk, second charge loans are charged at higher interest rates than mortgages (first charge loans). But they are cheaper than unsecured personal loans.

They are useful for borrowers who want to make home improvements or consolidate debt for example, but who do not want to, or cannot, remortgage their first charge mortgage.

This might be because they have a highly competitive interest rate they do not want to lose, or perhaps because they would be subject to Early Repayment Charges if they remortgaged now. It could also be that they are not eligible to remortgage, due to their equity stake, credit status or affordability.

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