What is a Second Charge?

Most of us are familiar with personal loans, credit cards and mortgages but a Second Charge loan may not be. As with most financial products, once you get beyond the jargon, it’s actually quite straightforward. A Second Charge is simply a loan that is secured on your property. This means that to be eligible you must be a property owner and that there must be enough equity in your property to secure the loan. The property does not have to be your main residence and can even be a commercial or Buy to Let property. The name “Second Charge” comes about from the fact that your mortgage is actually also known as a “First Charge”

Why Would I want A Second Charge?

There are a variety of reasons for considering a Second Charge. As it is secured on your property, the interest will be usually significantly lower than any unsecured debt you may have through personal loans or credit cards. Consolidating unsecured debt into a secured Second Charge will save you money, and sometimes quite a lot of money. However, never lose sight of the fact that once you have borrowed money using your property as security, then it is your property that is at risk in the event that you cannot make the repayments. Other common reasons for considering taking a Second Charge include meeting the costs of school fees, and tax bills, home improvements and deposits for other property as well as capital costs for you business. In this last instance, borrowing for business purposes is not something a normal mortgage will accept.

If you have a mortgage that has a favourable interest rate, or has penalties for early redemption, it may well make sense to take a Second Charge in order to secure further borrowing rather than remortgage your original loan.

Most unsecured loans are available up to certain limits, with the very top end being about the £35k mark. if you need to borrow more than this, then a Second Charge becomes attractive as the limit you can borrow is dictated by the equity in your property (as well as conditions relation to affordability) It is possible, though not always wise, to organise your borrowing so that the combined value of both your mortgage and Second Charge reaches 95% of the overall value of your property.

A Second Charge typically takes about three weeks from application to getting your money. Although I have been involved in mortgages that have been that quick, it is fair to say that on average a Second Charge will complete faster than a mortgage, and unlike a mortgage, there will not be any up front costs either.

As with all borrowing, you should carefully consider all aspects of what you are doing before you go ahead and ask as many questions as you can before signing. But, like most products, for the right person and the right circumstances, a Second Charge may well be a good idea.