Number of second charge mortgages increases

May 19, 2016 by Brendan

Home owners

Despite many homeowners seeking to pay off their mortgages as quickly as possible, there are growing numbers applying for second mortgages to fund improvements to their home.

According to the latest figures, lending for second charge mortgages is at its highest level since 2008. The amount loaned out for second mortgages has increased by more than a third from the year ending February 2014 to February 2015.

A second charge mortgage is secured against the equity in a property, and is generally taken out alongside an existing mortgage. You don’t have to apply to the existing lender for a second charge mortgage, although the main mortgage will have priority.

It is possible to re-mortgage a property to raise the funding for home improvements, although this isn’t an option for some borrowers. If a person has an interest only deal, they may not be given this option if they re-mortgage, which will substantially increase payments. The same problem may occur if a borrower has a current mortgage deal which is very low, as the same deal may not be offered for a higher loan amount.

Some deals have an early repayment charge, which is sometimes quite high. This can make a re-mortgage more expensive, which is why a second charge mortgage is the preferable option. Before considering a second charge mortgage, consider speaking to a mortgage adviser who has taken a CeMAP course, as they have the knowledge of each type of mortgage and potential costs.