Tougher lending rules are forcing more homeowners to turn to second charge loans to fund home improvements, such as extensions, and to consolidate expensive debt.
Industry figures show a 28% rise in the sums borrowed this way in the three months to the end of July against the same period last year.
The rise in second charge borrowing – so called because the lender is second in line for repayment behind the mortgage provider if a borrower’s home is repossessed – has been fuelled by rising house prices and the squeeze on household budgets.
The attraction of a second charge lending.
Mortgage rules have become much stricter in the past couple of years, with lenders applying tougher “stress” tests to make sure borrowers can meet repayments if interest rates rise. The consequences of this action are that you may not be able to secure extra funds from your original lender.
Some lenders will consider certain borrowers too risky to increase their loans.
But some borrowers also prefer to leave an existing mortgage in place because they would lose an attractive interest rate if they re-mortgaged, or there might be a steep exit penalty for switching.
By taking out a second charge loan with a new provider, your first mortgage is unaffected, but you need to tell the original lender.
A second charge loan may suit borrowers who have had payment problems, for example due to job loss or illness. These homeowners are often refused an increase on their first mortgage, but a specialist lender will most likely take a different view. More can be borrowed with a loan secured on a home than with an unsecured loan. Personal loans from high street banks are usually limited to £25,000.
If you want to raise capital using your home please do make contact and one of our advisers will be happy to assist.