Second charge mortgages are becoming a progressively more competitive way for borrowers to raise funds on their existing property, and product innovation means that there are more ways for clients to access a second charge mortgage.
For example, a growing number of landlords are choosing to raise capital with a second charge on a buy-to-let property and there is a growing range of options for clients.
We are also seeing a rise in second charge mortgages that take an equitable charge on the property. With an equitable charge, the lender does not take a legal stake in the property, but instead is given the right for a judicial process of recovery, which means that an equitable charge can be used where the first charge lender declines their consent to a second charge being registered. It even means that equitable charge mortgages are available to clients who have bought their home using a Help to Buy loan.
Therefore, with the growth in the availability and diversity of second charge mortgages, here are four frequent opportunities where a second charge mortgage might just prove to be the most suitable solution for a client.
Low legacy rate or interest-only
There are many borrowers on a lifetime tracker or variable rate that is so low that they would be unable to match their current rate by re-mortgaging. For clients in this situation who want to raise extra money from their property, it can sometimes be more cost-effective to use a second charge loan to borrow the money, rather than shift the entire balance onto a more expensive rate.
We also encounter clients on an existing interest only mortgage who, if they were to re-mortgage, would need to shift to capital repayment. A second charge mortgage can enable borrowers in this situation to borrow money on their home and keep their existing interest-only mortgage in place.