Consolidate personal debt, Raise money , Pay tax bill, complex income streams a second mortgage might be the right solution for you.
Money can be tight particularly in the months of December, January and February so I thought I’d write today about the virtues of a Second Mortgage product.
A Second mortgage product can be used to borrow anything from £3,000 up to £2,500,000 depending on the lender, your status and property equity. Unlike personal loans; the usage of the money on a second charge is virtually unrestricted provided it is legal, furthermore your credit record does not have to be perfect.
The mortgage contract is secured against a property so failure to keep up payments may result in repossession so careful consideration should be given before applying and professional advice from a Second Charge Mortgage Broker, such as Niche Advice, is highly recommended.
Common capital raising reasons for using a second mortgage
- Home Improvement / Heavy refurbishment
- Car purchase
- Holiday / Wedding
- Gifting money to a child
- Transfer of equity
- Medical procedures
- School fees
- Repay IVA
- Repay tax bill / Business purposes
- Lease extension
- Deposits for property
How income is assessed on a Second Mortgage
Lenders tend to look at income versus outgoings. The actual calculations are computerised however to give you a guide the maximum is circa 6 times income (less your existing mortgage balance). For example, if you earn £30,000 and have a first charge mortgage with Halifax for £100,000, you could borrow £80,000 on a second charge (6 x £30,000 – £100,000).
Will I be approved for a Second Mortgage?
Even short term employed and self-employed applicants can be considered depending on the Second Charge Mortgage Lender so the criteria for borrowing is flexible.
Credit issues such as: missed mortgage payments; ccjs; defaults; debt management plans; pay day loans; IVAs, and discharge bankrupts are often approved.
Property which is lived in qualifies and some Lenders will consider less desirable types including high rises, flats over shops and ex-local authority owned dwellings.
How much equity do I need in my property to qualify for a Second Mortgage?
In theory as little as 5% must remain after the first and second charges have been combined and subtracted from the property value. This gap widens as the Second Charge loan size gets bigger. From experience I would personally say 10% to give yourself a realistic chance of success. For example, you have a property worth £100,000 with an existing first charge mortgage of £50,000, you could borrow £40,000 on a second charge (90% of the property value).
If you want a second charge on a buy-to-let you would need at least 25% equity in the property.
How long can I borrow the money over?
The Second Charge Mortgages can run for 3 to 30 years, depending on your age. As personal loans normally are limited to 7 to 10 years maximum so this extra length may make your monthly repayments more affordable.
Lending into retirement may be possible.
The term on the Second Mortgage does not have to mirror the same length as the first charge mortgage.
Please note that borrowing over a longer period will result in a higher overall cost.
How will the Second Mortgage affect my existing First Charge Mortgage?
Well, your current First Charge Mortgage Lender will need to agree to you taking out a Second Charge Mortgage, most do. The terms of the first charge mortgage do not change. So if you are lucky enough to be on a really good rate, ‘interest only’ or in an early repayment charge period it does not stop you getting a second mortgage.
What sort of rate are you looking at on a Second Mortgage?
The loan will need to be tailored to comply with your individual circumstances and a specific illustration issued. I have segmented a few examples, click through for details:
- Competitive Rate
- High income multiples
- Bad credit
Niche Advice offers appropriate advice to borrowers seeking to raise money on property, including by way of a second charge. To find out whether you would qualify please press reply and say you are interested.
Typical APRC 5.4% variable
NICHE ADVICE LIMITED IS REGULATED BY THE BY THE FINANCIAL CONDUCT AUTHORITY.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. ALL LOANS ARE SECURED ON PROPERTY AND ARE SUBJECT TO STATUS.
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.
IF YOU CHOOSE A VARIABLE RATE LOAN THE COST OF YOUR PAYMENTS MAY INCREASE.
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Finance Brokers In London. His role is very much focused on Property financing both on residential and commercial lines.