Raising capital through second charge lending
If you already have a mortgage, getting a second charge could be the cheapest way to raise funds. But this really depends on your scenario. Ideally a remortgage with capital raising would be done but if you are mid a long fixed rate period, that isn’t always possible. This is where the second charge could be key. They don’t interrupt the fixed rate period as they don’t effect the original loan. This means you can get capital out without paying early redemption charges.
Often this makes them a very viable option for homeowners needing an injection of money for whatever reason. Say you wanted to put an extension on the house you currently own. You’ve just had the great news a new child is on the way. But you don’t have enough rooms and don’t really want to be sharing. There is plenty of equity in the home but you are two years into a five year fixed rate.
But not all hope is lost. This is exactly the situation in which a second charge loan could help you and your family. Let me explain further…
What is a second charge?
The clue is in the name. Second charges come after the first charge on your property. The first charge is the actual initial mortgage itself. The reason they have first and second comes into the degree of importance each holds. The first charge has initial priority on the funds of the house if repossession occurs. Their debt would be settled first and then the second, third, fourth etc if you have that many charges.
Due to this priority scenario, second and below charges can be more expensive in terms of interest as lenders are taking a higher risk in the unlikely scenario of repossession. As mentioned above though they do not effect the first charge. Therefore they can be used if you are unable to remortgage due to a fixed rate. The two main types of second charge lending are a further advance and secured loan. Let’s go into more detail on them both below.
Further advance & secured loans
Let’s start with a further advance. These work when your lender gives you a loan on top of your current mortgage that then acts as a second charge. Simply, they are an advance on your current lending amount. The key to this is that you borrow from your existing lender. Each lender will have different rates on this and different policies. Sometimes they accept only direct applications from clients. And sometimes they let us apply on your behalf. They could also be the type of lender that doesn’t do further advances. It really varies and is always worth speaking with us first so we can approach your lender and get the answers.
If a further advance isn’t to your liking, isn’t available or has a bad rate we can always look at a secured loan. Secured loans again are exactly what they say in the name. They are loans secured against your property. On a second charge basis or potentially third, fourth or fifth depending on your situation. The interest rates vary and there come with different fixed rates and terms. Each secured loan lender has different loan to value maximums as well as criteria. The good thing is generally their income multiples are good meaning you are more likely to be able to afford them than not.
So how should you start this process? Well…
Can I apply & how much could I borrow?
Anyone with a mortgage currently and some equity in the property can look at this. How much you can borrow really depends on the equity in your property. This is different for every person and will rely on a current valuation. Once you have this we can look at what sort of loan to value you could borrow up to. Generally you can get all the way to 90% LTV and even higher sometimes but this really depends on circumstances and what the lenders are currently offering.
We would supply a recommendation to you which you would consider along with our client agreement. Once this is agreeable we look to apply for the second charge on your behalf. We cover all the application process for you. This will include gathering relevant documents from you to prove validity to the lender. But the actual application process is shorter and quicker than a normal mortgage.
Second charge application process
Once you are signed up as mentioned above we do your second charge application. This will involve gathering of documents and submitting the application to the lender. They will then review this and sort out a valuation. Should all be satisfactory the second charge offer is released.
At this point our part of the second charge process is over. But we don’t stop looking after you there…
A key point to our ethos here at True Advice is that we take care of you through the whole process. We’re on hand to answer questions but also advise on the full area of financial services. This means that whilst taking care of your second charge as above we also look at your scenario fully. We will look at your insurance in place, and any investment or pension advice that we can help with.
The best way to start this whole process is getting in touch with us directly. We’re only one phone call away.