Second Charge Mortgage on a £2 Million Kent Property to Consolidate Debt

• Client: High-earning professional seeking to consolidate existing personal debt
• Property: Kent residential property valued at approximately £2.25 million
• Challenge: Required additional borrowing while an existing £1.4 million first charge remained in place with early repayment charges
• Finance: £150,000 second charge mortgage, bringing total borrowing to 70% LTV, at 8.99% fixed for two years

A second charge mortgage can provide an alternative way of raising capital against a property where an existing first charge mortgage is already in place. Enness was approached by a high-earning professional looking to use the remaining equity in a Kent property to consolidate existing debt.

The property was valued at approximately £2.25 million and already had a first charge mortgage of £1.4 million. The existing mortgage was fixed for two years, meaning that replacing it with a new first charge facility would have resulted in early repayment charges.

The client therefore wanted to retain the existing first charge and raise an additional £150,000 through a second charge mortgage. The additional borrowing would bring the total borrowing secured against the property to approximately 70% loan to value (LTV).

The purpose of the additional borrowing was to consolidate existing debt. Although the client had a strong income, the level of outstanding personal debt created an additional consideration for lenders when assessing affordability.

A second charge structure provided a potential solution without requiring the existing first charge mortgage to be redeemed. This avoided the need to incur the early repayment charges associated with replacing the existing facility while allowing equity in the property to be released.

Enness approached a specialist second charge lender with experience of considering higher-LTV applications. The lender was prepared to assess the client’s wider circumstances and the existing first charge when considering the proposed additional borrowing.

The resulting facility provided £150,000 of additional borrowing, taking the total borrowing against the £2.25 million property to approximately 70% LTV. The second charge mortgage was arranged at a fixed rate of 8.99% for two years at the time, with a two-year early redemption charge period.

The structure allowed the client to raise the required capital while retaining the existing first charge mortgage. This provided a route to consolidate the outstanding debt without triggering the early repayment costs associated with redeeming the existing facility.

The case demonstrates how a second charge mortgage can provide an alternative source of capital where an existing first charge is already in place. It can be particularly relevant where borrowers need additional funds but do not want, or are unable, to replace their existing mortgage because of early repayment charges or other considerations.

For borrowers seeking to release equity from a property while retaining an existing first charge, specialist mortgage finance can help identify suitable second charge lenders and structures, subject to affordability and lender criteria.

Disclaimer:
This case study is for illustrative purposes only and does not constitute financial, legal, tax or investment advice. Finance is subject to status, underwriting, affordability, credit assessment, property suitability and lender criteria. Terms, rates, LTVs, fees and availability may vary depending on individual circumstances.

Risk Warning:
Your property may be repossessed if you do not keep up repayments on your mortgage or other borrowing secured against it. Property values can fall as well as rise. A second charge mortgage creates additional borrowing secured against your property and may increase the overall cost of borrowing. Borrowers should carefully consider their ability to maintain repayments on both the first and second charge facilities.