What is a Second Charge Mortgage?
Second charge mortgages or second loans are often referred to as “second mortgages” because they have secondary priority behind your main (or first charge) mortgage.
They are a secured loan, which means they use the borrower’s home as security. Many people use them as a way to raise money instead of remortgaging, but there are some things you need to be aware of before you apply.
• You must be a homeowner to get a second mortgage, although you do not necessarily need to live in the property.
• A second charge mortgage allows you to use any equity you have in your home as security against another loan. It means you will essentially have two mortgages on your home.
• A second charge mortgage can be a loan of anything from £1,000 upwards.
• Lenders now have to comply with stricter UK and EU rules governing mortgage advice, affordable lending and dealing with payment difficulties. This means that lenders now have to make the same affordability checks and ‘stress test’ the borrower’s financial circumstances as an applicant for a main or first charge residential mortgage.
• Borrowers will now have to provide evidence that they can afford to pay back this loan.
Our expert Advisers will be able to help you regarding what an affordability assessment might involve, and the evidence you may be required to provide to support your second mortgage application.
When is it appropriate to take out a Second Charge?
• When you are already on a competitive mortgage rate
• When you are tied into your mortgage with heavy redemption penalties
• When you have an interest only mortgage
• When you need a larger sum over a longer term to reduce payments
• When your credit status has changed since your last mortgage was agreed
• When you need early settlement flexibility
• When you need to raise capital for a non-traditional purpose
• When you are unable to obtain a re-mortgage or further advance
• When soft credit searches at quotation stage is important
What can South Manchester Mortgages offer you?
• Up to 95% LTV (unlimited LTV up to 10k)
• Rates from 4.45%
• Buy to Lets 85% LTV (rates from 5.45% + BBR)
• Loans between 5K and 2.5m – larger loans on referral
• Loan term from 36–360 months
• CCJ’s, Defaults and Mortgage arrears considered
• Ex bankrupts & current IVA’s considered
• Self-employed loans available we will need proof of income using SA302, accountants’ references or the last 2 years’ accounts.
• Various income types considered including some benefits
• Loans for any purpose
What can be Bridging Finance be used for?
Bridging loans are only an option worth considering in specific financial circumstances whether you are a professional or private borrower. However, as Bridging Loans are generally provided by specialist companies all manner of situations can be considered and catered for.
Common uses for bridging loans include:
• Securing a house purchase until your existing property is sold
• Covering a break in a property chain so you can buy a new home while waiting for a mortgage
• Completing a building project, if the next tranche of your self-build mortgage is not released until stage-completion
• Renovation and redevelopment; altering an existing property structurally or cosmetically with a view to resale or refinance
• Buying a property at auction
• Funding a new business venture e.g. buying time to raise money internally and/or generate investment
• Business invoice finance to help with cash flow while you’re waiting for money to come through
• Paying for work to be completed so a mortgage can be agreed; for instance, if your mortgage offer is contingent on some basic work being carried out to make it habitable
• Divorce settlement
• Lease extension
• Refinancing an existing bridging loan
Whatever your reason for considering a bridging loan it is essential that you have a clear ‘exit strategy’ for paying the loan back. Bridging loans from UK lenders are generally only available on properties, land or businesses based in the UK.
Open and Closed Bridging loans
There are two classes of bridging loans, known as open and closed.
Open Bridging Loans
An open bridging loan means you havenot yet got an agreement for your main source of finance and a concrete time frame for the loan being repaid; for instance, a mortgage agreed in principle or the sale agreed on your house. Open loans are riskier to both you and the lender, so are more expensive.
Closed Bridging Loans
A closed bridge loan is available to homeowners who have already exchanged contracts for the sale of their current property, have a concrete mortgage offer or some other pre-agreed means of paying back the loan at a certain point in the future. These are slightly less risky so tend to be more readily available, more flexible and more affordable.
What do bridging loans cost?
Both the loan size and its duration will impact on the bridging loan interest rates you will be charged, as will the property, land or business you are securing the loan upon, your credit rating and, in the case of property purchases, loan-to-value (LTV) required
Finally, you need to be aware that bridging finance charges one-off arrangement fees including valuation fees, admin and legal fees plus (occasionally) exit fees.
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Call 07791 533122 or email: email@example.com