A second charge loan is an additional loan secured against your property, sitting behind your existing first charge mortgage. It allows you to borrow against the equity you have built up without remortgaging or disturbing your current mortgage deal. This can be particularly useful if you have a competitive rate on your first mortgage that you do not want to lose, or if you would face early repayment charges for remortgaging.
The term "second charge" refers to the order of priority. If the property were sold or repossessed, the first charge mortgage lender would be repaid first, and the second charge lender would be repaid from any remaining equity. Because of this higher risk, interest rates on second charge loans are typically higher than first mortgages.
Second charge loans are regulated by the Financial Conduct Authority (FCA) and are commonly used for home improvements, debt consolidation, or raising capital for business purposes. Loan amounts typically range from £10,000 to £500,000, with terms from 3 to 25 years.
Your home is worth £300,000 and your remaining mortgage is £180,000, giving you £120,000 in equity. You take out a second charge loan of £40,000 over 15 years at 6.5% to fund a loft conversion. Your monthly second charge payment is around £349, paid separately from your existing mortgage. Your total borrowing secured against the property is now £220,000.
Key Points
- Secured against your property behind your existing mortgage
- Allows borrowing without remortgaging or losing your current rate
- Interest rates are typically higher than first mortgages
- Regulated by the FCA like standard mortgages
- Your home is at risk if you fail to keep up repayments on either loan