How Much Can I Borrow With a Second Mortgage?
A second mortgage is a loan secured against your property, at the same time as a first charge mortgage.
Second charge mortgages in the UK are typically suited to property and homeowners that have paid off a significant portion of equity in their home or property through both their deposit and first charge mortgage already.
In such circumstances, it can be possible to then utilise a second mortgage to utilise the equity built up in the property to cover significant expenses, such as the costs of home improvements, a wedding, starting a new business or consolidating numerous existing debts, to name a few.
With a second mortgage, the property owner will have two mortgage repayments to make each month; their first charge mortgage and their second charge mortgage. This should always be considered before opting for a second mortgage.
Am I Eligible to Get a Second Mortgage?
How much you can borrow with a second mortgage will depend on your eligibility and affordability.
A key element to calculating how much you can borrow with a second mortgage is nderstanding how much equity you own in the property in question.
For example, if you have paid off and own 40% of the value of the property, with the emaining 60% of the value being repaid via a first charge mortgage, the second charge lender will only allow you borrow against a portion of the 40% you already own.
Your credit score is also an important factor for lenders to consider. Although there is no specific credit score a borrower needs to have when it comes to getting a second mortgage, lenders will typically prefer those that have good credit scores.
With a second mortgage, you can only borrow against the equity you already have in the property, rather than against the total value of the property.
Can I Increase the Size of My Second Mortgage?
If your financial circumstances and credit history are appealing to second mortgage lenders, this can in some circumstances increase the potential size of your second mortgage. It is important to remember though, that mortgage lenders will have a maximum loan-to-value (LTV) that they will lend, usually around 80-85% for second mortgages.
You may be able to secure a larger second charge mortgage loan if:
- Property prices have increased in your area, boosting your equity
- You have already repaid a large amount of your first mortgage
- You have made valuable home improvements, such as a new bathroom or windows which increase the property’s value and thus, your equity
- You have a very good credit score and are deemed a good lending prospect by lenders
- You already own a greater proportion of equity in the property
What Is The Most I Can Borrow With A Second Mortgage?
How much money you can borrow with a second mortgage will depend on your financial circumstances, the value of the property and your creditworthiness, amongst other factors to consider.
If for example, you are in a financial situation that is attractive to lenders; with a steady income, good credit rating and a significant proportion of equity in your home, you may be able to get a larger second mortgage, which will be borrowed against the necessary portion of equity in the property.
Under the right circumstances and with some lenders, the amount you can borrow through a second mortgage can fluctuate.
What Are The Advantages of a Second Mortgage?
Choosing a second mortgage has a number of potential advantages, which make them appealing to prospective borrowers.
With a second mortgage, you have an increased degree of freedom to decide how to spend the money you borrow. Although the loan is secured against your home or property, you can spend the money as you wish.
People often use them to pay for home improvements, setting up a business, paying for a wedding and purchasing a second home or a holiday home. Getting a second mortgage can also be cheaper than remortgaging, which can otherwise involve expensive early repayment fees.
Moreover, you can usually borrow more with a second mortgage than with other forms of credit. Your home is likely to be your most valuable asset and so, using it as collateral for a loan allows you to access more money than is typically available through a personal loan or other unsecured loan option.
If you have significant expenses or debts to cover, a second mortgage may be your best choice.
What Are The Disadvantages of a Second Mortgage?
The significant potential disadvantage of getting a second charge mortgage is that your home is at risk. As you will already have a first charge mortgage secured against your home when you come to get a second charge mortgage, you are in theory increasing the chances of defaulting on repayments and potentially having your home or property repossessed if you fail to make your repayments.
A second mortgage is still a mortgage and so, your property is the collateral which secures the loan and the lender can force you to sell if you become unable to meet your repayments.
If your current expenses are just about manageable, a second mortgage may not be the right option for you. Taking out a loan secured against your home is a big decision and it is always recommended to seek independent financial advice before borrowing a second mortgage.