Why Get A Second Mortgage
You need extra funding or finance for a new project, but where can you go for this?
There are multiple methods to acquire funding. One option could be to obtain a second mortgage, which is also known as a secured loan, homeowner loan, or second-charge mortgage. This involves using the equity in your property to secure a loan against it, meaning that in the event of the repayments not being met, you could lose your home.
The repayment term for a second mortgage can be up to 30 years, so repayments are also more affordable than an unsecured loan, which usually has a maximum repayment period of 7 years.
Who Offers Second Mortgages?
Second mortgages aren’t generally available from high street lenders, but through challenger banks such as Shawbrook Bank, United Trust Bank and Tandem Bank.
Challenger banks are smaller than traditional high-street banks that you might be more familiar with, like Barclays and Lloyds. They are recognised for their advanced technology and excellent customer service. Their lack of overheads often means that they can pay higher rates of interest on customer savings.
Challenger banks offer a range of benefits. One of these is the ability to view real-time payments, meaning you are notified whenever there is activity on your account. This could help highlight any fraudulent activity that may occur.
Of course, all banks need to be regulated and authorised by the Financial Conduct Authority (FCA).
What is the Purpose Of A Second Mortgage?
Lenders will allow you to use the second mortgage funds for most legal purposes.
The most popular reason people take out a second mortgage is to consolidate their current loans and credit cards. As a second mortgage rate is often lower than the interest rates on their existing credit commitments, taking out a new loan over 20 years or more generally results in a much lower single repayment.
The main two considerations to take into account are:
Your Loans And Credit Cards Are Unsecured - This means if you don't make repayments, you are unlikely to lose your home. With a second mortgage, you could lose your home if you were to stop making payments.
Longer-Term Loans Encourage Extra Payments - If you keep a loan for a term of 20 years, for example, you are likely to have paid back much more interest than if you had kept making the repayments on your current credit.
Other popular purposes of loans include home improvements, business injection, weddings and car buying. More people are opting to work from home, which has caused lenders to see an increase in loans for extensions. These loans create extra space and more convenience for individuals to work from home.
If you are looking for funds to buy a car, it is worth noting that some lenders may restrict the term to, say, ten years as cars depreciate quickly.
What Are The Alternatives To A Second Mortgage?
There are a few options to consider if you want to raise finance. To be guided in the right direction, we strongly recommend that you seek the services of a qualified mortgage broker. Ensure they are CeMAP qualified (Certificate in Mortgage Advice and Practice) and are regulated and authorised by the FCA.
Approach Your Current Lender
If speed is important, approaching your current mortgage lender is one of the quickest ways to raise additional funds. They will know your payment history and are keen to keep hold of good borrowers. They will want to know your current income and expenses, as well as the value of your property. The process should be relatively straightforward.
Get A Personal Loan
Personal or unsecured loans are a quick way of raising funds. When applying for a personal loan, you may have to pay a higher interest rate depending on your credit score or rating. The process can take just 24 hours.
Remember, not many lenders offer personal loans of more than £35,000. Those that do usually have a maximum repayment period of 7 years. As a result, monthly payments can be high.
A complete remortgage might be the most suitable option for some people. A good mortgage advisor will establish your current mortgage deal and see whether better options are available. They will consider the terms of your current mortgage and check to see if any early repayment charge is payable. The equity in your home and credit history are key factors in determining whether remortgaging is the correct route for you.
Can You Get A Fast Second Mortgage?
It is possible to get a second mortgage in 48 hours; however, it usually takes longer. Sometimes, the process may take up to 6 weeks or more. The time in which you may be able to get a second mortgage is entirely dependent on your circumstances and situation:
Has The Property Been Registered At The Land Registry?
In recent years, the time taken to register the sale of a property has taken longer and longer. Around 20% of applications take a year to be registered, and only 15% are registered within six months. Your property must be registered at the Land Registry and in your name.
Does Your Lender Need An Internal Valuation?
Depending on the loan to value (LTV) and the amount you want to borrow will determine whether a lender is prepared to work with a desktop valuation or if they need an internal valuation. Desktop valuations can be done immediately. Internal valuations can take up to two weeks or more. Once you make an appointment, you’ll be visited for the inspection where any comparables are found. Finally, the report is completed.
Does The Lender Need The Consent Of Your Mortgage Company?
Lenders will need to obtain office copies from the Land Registry to determine if they require your mortgage company's permission (consent) for the new lender to register their charge. This can take up to 14 working days.
A broker may need various documents from you. These can include your passport, driving licence, council tax statement, utility bills, bank statements, statements from your existing mortgage company, credit card statements, wage slips, P60, and accounts (if self-employed). The quicker you return all requested items, the quicker a broker can process your application.
Can I Get A Second Mortgage With Someone Else?
If your property is in joint names with you and your partner, the second mortgage must be in the same names. You and your partner are both responsible for repaying the loan. If one of you cannot pay, the other must take responsibility.
If you are the sole property owner, some lenders will allow another person to become a party to the loan. Usually, this person is living at the property. The lender will use the income of the person being added to the loan, which is helpful as it may allow you to borrow more money if needed. This will not affect your first mortgage; you will remain the sole borrower.
A lender will often insist that anyone becoming a party to a mortgage should take independent legal advice so that they fully understand the implications of signing a legal charge.
If you want to take out a second mortgage, please don't hesitate to contact The Second Mortgage Company team, where we can advise you on the various options available.