Second Charge Mortgages Explained
Historically second charge mortgages, sometimes known as Secured Loans, were often seen as a last chance option. The rates were much higher and carried hefty early repayment charges. However, with rates now closer to traditional mortgage rates, No early redemption charges, Fixed rates and Loan to values up to 95% – second charge mortgages are often a very attractive option. There are many scenarios when a second charge may be a beneficial alternative when looking at capital raising – seconds can also offer a welcomed haven against some of the restrictions on the first charge market.
Why A Secured Loan?
The increasing focus on the mortgage market and restrictions in lending has made the option of a secured loan even more important for clients who need to capital raise. Secured Loans can be used for virtually any legal purpose, and are generally quicker to complete than a remortgage. A secured loan can also enable clients to borrow money, particularly if they do not wish to disturb their current mortgage arrangements. Loan sizes are available from £10,000 right up to £2,500,000 & loan terms up to 25 years, a secured loan is often a credible alternative to a remortgage. Secured Loans also have the added attraction of no upfront costs and there is no requirement for a solicitor to be involved in the transaction.
Secured loans, What is available?
- LTV’s up to 95% for employed applicants
- LTV’s up to 95% for Self employed applicants
- Loan sizes from £10,000 – £2,500,000
- Rates from as low as 4.95%
- Buy to let second charges available to 75% LTV
- Range of non conforming products for clients who have poor credit or may need to access credit repair products.
- Loans available for borrowers looking to exit a debt management plan
- Relaxed income proof for self employed borrowers
- Maximum redemption penalties 2 months interest
- Loan Purpose – Secured Loans covers most legal purpose including business purpose and repayment of tax bills amongst others
Who are secured loans available to?
- Employed or Self Employed homeowners who have an existing mortgage
- Landlords of rental properties – many of our lenders base affordability on rental income without further proof of income.
- Borrowers who do not wish to upset their existing repayment vehicle through remortgaging such as interest only mortgages & those benefiting from low variable rate mortgages
- Limitations of further advance options e.g loan size or LTV and again forcing interest only borrowers onto a capital and interest mortgage
- Affordability – we are aware of debt consolidation applications being declined on affordability especially if the debt being consolidated is still being built into the income assessment
- Self Employed Applicants – all of our lenders will accept accountants certificates to confirm income. In some circumstances we can also work off bank statements
- Clients with ERC’s who may need to capital raise without disturbing their existing mortgage.
- Ability to capital raise affected by lender income multiples
- Clients with missed or late payments on unsecured credit
- Clients in a Debt Management plan, or those looking to repay an IVA or a Bankruptcy.
Case Study 1
- Client Mr S (completed in Sept 2014)
- £80,000 Net Loan
- 43% LTV
- Lender – Prestige Finance
- Rate – 5.60% (6.46% APR)
- Monthly Payment – £586.01 over a 20yr term
- Client wanted to consolidate all of their outstanding credit which totalled £60,000 and also took £20,000 for school fees and home improvements.
- Their existing outgoings on their unsecured credit was £1800, when we completed their loan, their outgoings were reduced to £586.01 making a monthly saving of £1200 per month.
Case Study 2
- Property value £1.45 million
- First mortgage £757k costing £3908.00pm
- Second charge of £130k costing £1076.00 pm
- Credit cards of £50.5k costing £1515 per month
- Client wanted to re-mortgage but had a £15k ERC on current mortgage
- The broker negotiated with mortgage lender who switched the current product to a lower rate without any ERC
- The broker then arranged a second charge for £194k which paid off the existing second charge and credit cards and allowed the applicant to carry out some home improvements
Historically second charge mortgages, sometimes known as Secured Loans, were often seen as a last chance option. The rates were much higher and carried hefty early repayment charges. Fixed rates and Loan to values up to 95% – second charge mortgages are often a very attractive option.
There are many scenarios when a second charge may be a beneficial alternative when looking at capital raising – seconds can also offer a welcomed haven against some of the restrictions on the first charge market.