The second charge market is growing all the time – Landlords benefit

The second charge market known as “seconds” are particularly helpful for those who are struggling to access funds, such as self-employed or those with complex financial backgrounds.

Example, a second charge loan helped a self-employed couple who had been turned away by high street lenders. In the first year of their business they opted not to take a dividend or salary, reinvesting cash in their enterprise instead. This saw them fall outside the remit of mainstream banks. A second charge loan fitted this criterion and at a very advantageous rate, problem solved.

Landlords

Second charge has also emerged as an increasingly useful way for buy-to-let landlords to release funds. This could be for making improvements to a rental property or releasing equity to grow their portfolio. It could even be the case that a landlord utilises this facility to make improvements to their own home – as long as they can cover the cost from rental income received.

Re-mortgage v seconds market

Mortgage rules have become stricter in the past couple of years, with lenders applying tougher “stress tests” to make sure borrowers can meet repayments if interest rates rise. So you may not be able to secure extra funds from your original lender. Some lenders consider certain borrowers too old or too risky to increase their lending.

Some borrowers also prefer to leave an existing mortgage in place because they would lose an attractive interest rate if they re-mortgaged, or there might be a steep exit penalty for switching. By taking out a second charge loan with a new provider, the first mortgage is unaffected, but you need to tell the original lender. You must have enough equity in your home to cover it.

A second charge loan may suit borrowers who have had payment problems, for example due to job loss or illness. These homeowners are often refused an increase on their first mortgage, but a specialist second charge lender may take a different view.

Like to know more?

A second charge loan will not suit everybody so it’s very important to get independent professional advice. We have qualified advisers waiting to help so please do make contact.