While second charge mortgages (second mortgages) are not normally the preferred route for those looking to raise additional funds, sometimes they can be the most cost-effective route. A second charge mortgage means that as well as the initial mortgage charge on your property, there is a secondary charge which is covered by the equity in your property. So for example, if you had a property worth £500,000 with £250,000 outstanding on your mortgage capital, you would have equity of £250,000. Therefore, if you were looking to raise £50,000 you could, in theory, use your property equity as collateral to obtain an additional secured loan.
There are several reasons why you may look to secure a second mortgage using a second charge such as:
If interest rates were relatively low then one of the alternative options would be to re-mortgage the property in full. However, if interest rates are relatively high then it makes sense to effectively re-mortgage part of the property as opposed to the whole property at a higher rate.
It is fair to say that second charge mortgages are not without their risks. In many cases, funds raised can be used to fill any financial gaps in the short to medium term. However, if the situation does not improve and the borrower was to default on either their primary or secondary mortgage they could lose their home. In theory, there would be sufficient capital available to cover the cumulative outstanding borrowings but that may still involve the sale of your home.
There are perfectly legitimate scenarios where a second charge will help to reduce finance costs and raise much-needed capital. In some circumstances they can act similarly to a bridging loan, covering a short to medium term financial deficit. We have a number of customers who have utilised second charge mortgages to their advantage.
There is no one size fits all for second mortgage rates as they will be determined by your specific requirements and financial situation. While in many cases a second charge mortgage can be seen as a last resort it is not necessarily the case. Where there are sufficient collateral and a short, medium and long-term plan for repayment of capital, there is every chance we can secure attractive terms on your behalf.
We have access to hundreds of commercial lenders and a particularly strong presence in the private banking sector – the second charge mortgage lenders UK market is very liquid. We find that private banks tend to be a little more flexible than their traditional counterparts, often prepared to look at the bigger picture as opposed to short-term issues. The key to securing attractive second mortgage terms is the level of security and perceived “headroom” which is effectively the cushion between your liabilities and assets.
We have experts right across the financial spectrum with specific experience in arranging second charge mortgages. We find that an honest and transparent approach to any short to medium term financial difficulties brings the best results. The key is protecting your assets, maximising your equity and ensuring that finance costs are acceptable and fair. In some circumstances, a second charge mortgage may not be the right move for you. If so, we will advise you of other options and put together a number of bespoke packages to compare and contrast rates and conditions.
Rest assured, we will guide you in terms of the risks involved and ensure you take the right option for your circumstances. Why not give us a call today for a no obligation chat and we can discuss the options and rates available in the market today.
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