Borrowers Who Should Consider Second Charge Secured Loans

Marcus Reeder, director of AtPledge, says the length of time additional capital is required by a borrower is a key consideration.

A second charge loan is normally designed as a short to medium-term facility for asset owners to raise money quickly, keeping their long-term mortgage and other borrowing separate. There are several reasons why a second charge mortgage can be useful and should be considered.
If your credit rating has deteriorated since taking out a first mortgage, remortgaging could mean you end up paying more interest on the entire mortgage, rather than just on the extra amount you want to borrow. Under these circumstances, borrowers may be better off opting for a second charge loan.
This is particularly true after the Mortgage Market Review (MMR), which majorly changed the affordability criteria set by banks. Many borrowers now find they are refused or offered massively different terms than when they originally took out their loan.
The most obvious people who may benefit from second charge secured loans are those who have been refused a re-mortgage only because there are so many situations, which first charge lenders don’t cater for. Brokers now need to compare if a secured loan may be a better solution than to a re-mortgage as there are many scenarios where this may be the case.
For instance borrowers who are on a tracker/fixed rate deal, borrowers who will suffer high early redemption charges if they re-mortgage; or borrowers who have an interest-only mortgage and do not wish to move to capital and repayment.
Borrowers who might contemplate a second charge mortgage include self-employed business owners who need better trading accounts to obtain a leading re-mortgage rate. Mr Reeder says second charge secured loans may provide the stopgap some borrowers need until circumstances improve, enabling them to re-mortgage at more favourable rates.
A re-mortgage may also not be the most suitable option due to the loan purpose, the borrower’s age or the type of security available. Everyone is aware of the historically low Bank of England base rate, which has led to some low interest rate home loans available from first charge mortgage lenders.
As a result of the state of the first charge mortgage market the typical second charge mortgage customer now is someone with a very good first charge mortgage product, looking to raise additional funds but not wanting to lose the benefits of their current mortgage.

Mr Reeder says: “The products available in the market today are widely designed to be available to all types of customers, whether the customer has impaired or perfect credit history there is a product available.

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