Second Charge Loans explained: How they work & when to use one

What is a Second Charge Loan and how does it work?

As a property owner, financial flexibility is crucial. If you need access to additional funds, you might consider re-mortgaging or taking out a personal loan. But what if there’s another effective option?

A second charge loan allows you to borrow against the equity in your property while keeping your existing mortgage in place.

In this guide, we’ll explore what a second charge loan is, how it works, the types of second charge loans available, and whether it could be the right choice for you.

What is a Second Charge Loan?

A second charge loan, also known as a second mortgage, is a secured loan that uses your property as collateral—just like your primary mortgage. However, instead of replacing your existing mortgage, it runs alongside it, meaning you’ll have two separate loans secured against your property.

How does a Second Charge Loan work?

Unlike re-mortgaging, where you replace your existing mortgage with a new one, a second charge loan allows you to retain your current mortgage terms while borrowing additional funds based on the equity you’ve built up in your property. The lender of the second charge loan ranks behind your primary mortgage provider, meaning they get paid after the first lender in case of repossession.

Benefits of a Second Charge Loan

• Access to larger Loan amounts – If you have significant equity in your property, you may be able to borrow more than with an unsecured loan
• Preserve your current mortgage – If you have a low-interest mortgage, a second charge loan lets you borrow without disrupting your primary loan
• Flexible usage – Funds can be used for various purposes, such as property improvements, debt consolidation, business investments, or large purchases
• Potentially lower interest rates – Since the loan is secured against your property, interest rates may be lower compared to unsecured personal loans

Things to Consider Before Taking a Second Charge Loan

• Risk to your property – Since the loan is secured against your property, failure to make repayments could result in losing your property
• Interest rates & fees – While often lower than unsecured loans, second charge loans may have higher rates than your original mortgage
• Affordability – Ensure you can comfortably afford the repayments alongside your existing mortgage
• Credit implications – Late or missed payments could impact your credit score and ability to borrow in the future

Who Might Benefit from a Second Charge Loan?

A second charge loan can be a great option for property owners who:

• Want to retain a low-interest mortgage without re-mortgaging
• Need to borrow a significant sum but don’t qualify for an unsecured loan
• Want to consolidate high-interest debts into a more manageable payment plan
• Are self-employed or have an irregular income, making re-mortgaging challenging

Types of Second Charge Loans We Offer

1. Second Charge Buy to Let (BTL) Mortgage

A Second Charge Buy to Let (BTL) Mortgage is a secured loan taken out on a rental property that already has a mortgage in place. It allows landlords and property investors to release equity from their buy-to-let property without re-mortgaging their existing loan. Here are some of our product criteria:

Key Product Criteria:

• Minimum Loan: £10,000
• Maximum Loan: £300,000
• Loan-to-Value (LTV): Up to 75%

2. Bridging Loan on your residential property or Buy-to-let

A Bridging Loan provides short-term funding solutions for landlords and investors looking to raise capital quickly.

Common Uses:

• Property Refurbishment – Raise funds to improve a property and increase rental yield. (We offer Light refurbishment only*.)
• Portfolio Expansion – Use equity from an existing property to acquire new investments.
• Business Loans – Secure funding for growing your business or funding a purchase for your business

Here are some of our product criteria:

Key Product Criteria:

• Minimum Loan: £25,000
• Maximum Loan: £300,000
• Loan-to-Value (LTV): Up to 75%
• Minimum Term: 1 month
• Maximum Term: 18 months

Conclusion

A second charge loan can be a valuable financial tool, allowing property-owners and landlords to access funds without disrupting their existing mortgage terms. Whether you’re looking to expand your property portfolio, consolidate debt, or invest in property improvements, this financing option could be the perfect solution.

If you’re considering a second charge loan, contact us today to discuss how we can help you achieve your financial goals.

*Note: A light refurbishment loan is used to fund minor refurbishment that does not interfere with the structure of a property. In other words, light refurbishment does not change the layout of a property and refers to renovations that do not require planning permission, unlike heavy refurbishment loans.