A mortgage is no more than a secured loan against an asset by way of a lien. A second charge works in exactly the same way.
In other words, a lender loans money to a borrower so that he / she may buy a property. The loan is conditional upon a variety of terms, one of which is the defined collateral for the debt. In this instance, collateral is another name for ‘security’ and this is secured by way of a lien.
The registration of a loan against a property’s title is referred to as a ‘charge’.
Most properties have only one debt registered against them (because most people take out only one loan when purchasing a property) although sometimes a borrower might extend or add to his or her mortgage during its term in order to raise money, perhaps for a home extension - or a child’s wedding.
From time to time, a home owner might be unable to raise money through their primary mortgage lender due to their circumstances or the criteria set by the lender. In these cases the homeowner may wish to borrow money but he cannot borrow it from his existing lender. In these circumstances, it is possible to raise more money by way of a secured loan, with a different lender. It is normal for the new lender to take a second charge against the borrower’s property.
A second charge is a secured loan but it will have less precedence than a first charge. If the borrower defaults on either the first or second charge, either lender can instigate repossession proceedings. However, the first charge lender gets their money first, and there may not be enough money left to repay the second charge lender. In this case, the lender will have to look at other ways to reclaim their outstanding debt.
When taking a second charge mortgage lenders will always consider the affordability of the new repayments and whether the loan will over extend their borrowings. However, in some cases borrowing by way of a secured loan is a far better way of raising money as terms are normally much cheaper and over longer periods than a shorter, unsecured loan agreement.
Here at Mortgage Required, we specialise in secured loans so please get in touch on 01628 507477 if you need more information.
Related articles:
Download our Free First Time Buyers Guide
Recent posts
Skipton Building Society launches ‘Delayed Start’ mortgage meaning first time buyers won’t be required to make repayments for the first three months.
According to a survey by Skipton, first time buyers who bought their home in the last five years found that in the first three months of living there, they were spending upwards of £30,000.
Gardening Tips for Beginners
5 days ago
If you have recently moved into a property with a garden that requires a little TLC, or you’d like to get on top of your current green space, check out our tips.
The Family-Backed Mortgage from NatWest
8 days ago
High street lender, NatWest, have launched a new product to help first-time buyers purchase a property with assistance from a family member or friend to get them on the property ladder sooner.
‘Buy Now, Pay Later’ (BNPL) schemes, such as ‘Klarna’ are short-term loans that allow shoppers to make a purchase, but delay paying for it for an agreed amount of time.
Klarna is one of the most popular BNPL services with 18 million customers in the UK alone, and offers interest-free payment options which is appealing to shoppers. However, does it affect a mortgage application?
Buy to Let mortgages: what's happening?
14 days ago
We look at how to get the best Buy to Let mortgage rate, what's in store going forward, and options as a landlord with increasing costs.
UK mortgage rates following Trump’s Tariffs
23 days ago
Throughout this past week, lenders have continued to reduce their mortgage rates giving borrowers in the UK some welcome news following the change in global tariffs under US President, Donald Trump.
Effective ways to relieve stress
23 days ago
Did you know that buying a house, or relocating is in the top 10 most stressful life events?
Stress of course is an unavoidable part of life and there are many reasons why people experience stress, not just buying a house!
There are lots of effective ways to manage and reduce stress, check out our tips to help you.
With the stamp duty relief ending in England and Northern Ireland, we have listed the top 10 cheapest areas for first-time buyers as published by Rightmove.
More information
Trusted by
