Most of us know that a mortgage is simply a secured loan, usually secured on a property such as a house or flat. If you fail to keep payments or don’t keep to the terms of the mortgage you may incur penalties, the most severe of which might result in the mortgagee (the lender) applying to the courts for a possession order. 

Your mortgagee will have the first claim on the property in such circumstances and they will hold a charge on the property, registered on the deeds or, in most cases these days, on the registered title kept at the Land Registry. This will prevent the property being sold without any mortgage first being paid off.

A second mortgage, as the name suggests, is a second loan that is also secured on a property. However, being the second loan, it is normal that the rights enjoyed by the second mortgagee (lender) are subject to the prioritised rights of the first lender. For this reason, second mortgages will usually be more expensive to the borrower in terms of interest rate, although there are other benefits over other funding options such as a remortgage.

For example, if your first mortgage is subject to a significant early redemption fee, it might be cheaper to take a second mortgage, perhaps for a shorter period of time, rather than incur the redemption charges on the first mortgage. Other borrowers apply for 2nd charges when their existing lender cannot offer any further borrowing, for whatever reason.

Any second mortgage will still need to meet the usual tests in relation to affordability, advice and loan to value/equity. In any event, the borrower should check first with the original lender to make sure that they will allow a second charge to be taken on the property. It’s therefore, important to know the terms of the first loan.

It might be worth taking advice on a second mortgage if you’re struggling to get some form of unsecured borrowing, such as a personal loan or because you’re self-employed. Also, if your credit rating has gone down since taking out your first mortgage, remortgaging could mean you end up paying more interest on your entire mortgage. Here, a second mortgage might be a better option.

Second mortgages are regularly used to fund home extensions and home improvements. New kitchens being a favourite! Contact Mortgage Required about the best course of action for you.

Recent posts

Almost one in five equity release mortgages are now taken out to provide financial support to family.

According to industry data, the expected wait for those looking to buy a property has dropped from just over 11 months to less than six months.

It is common for your first mortgage payment to be higher than your subsequent monthly payments for two reasons.

Firstly, a big congratulations, you’ve now exchanged contracts! After weeks and months of waiting, you are about to move in. What should you do first?

The chancellor will deliver her second budget this autumn. Due to slow economic growth and high inflation, the government need to manage a £40 billion shortfall in public finances. There have already been reports about changes to taxes including income tax and capital gains tax.

The chancellor has advised that landlords could have another tax to pay this autumn as the Treasury decide whether to extend national insurance contributions to rental income. 

According to a report in the Guardian, senior ministers have asked Treasury officials to look into a “proportional” property tax to see how it would work as an alternative to the existing stamp duty land tax on owner-occupied homes. 

More than a quarter of UK adults in long-term relationships (26%) have reported that despite living together, they keep their finances separate from one another.