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If you need to raise a substantial amount of money comparatively quickly, taking out a secured loan against your mortgaged home could offer a solution.
You may also be eligible to take out a secured loan if you have an existing secured loan agreement against the property or if your home is mortgage-free.
We explain how second and third charge secured loans work and what should be considered before you apply.
When you take out a loan or mortgage secured against your property, it is registered as a charge on that property. The type of charge determines the order in which lenders are repaid if the property is sold. Here’s how they work:
A second charge is a loan secured against your property in addition to your first mortgage. It allows you to borrow further funds using the equity in your home without changing the terms of your original mortgage.
As the name suggests, a second charge can only be registered if there is an existing first charge in place. However, if your property is mortgage-free, you would not be eligible for a second charge loan. In such cases, the first option to raise finance would be through a mortgage or a micro mortgage. A micro mortgage is a smaller, often more flexible loan that operates similarly to a secured loan, and can serve as a suitable alternative where appropriate.
The way the charges are ranked is important, especially when it comes to the repayment of the debt in the event of a default.
The first charge lender takes priority, followed by the second charge lender and then the third. If the property is sold and there are not enough funds to cover the repayment of all outstanding loans, the third charge lender may not recover the full amount owed.
To get a better understanding of how it all works and how it applies to your circumstances, you can speak with one of our advisors who can answer all your questions.
We work with lenders who will consider loan applications from customers that want to use a mortgage-free property as security. These types of secured loans are classed as micro-mortgages, which we explain in more detail below.
As mentioned earlier, lenders refer to secured loans as “second charges”, as most applicants already have a mortgage in place on the property, which is classed as the “first charge”.
What this means in practice is that should the borrower default, the secured loan is second in terms of repayment priority, while the mortgage repayments take primary importance.
Mortgage-free properties do not have a first charge in place, making it impossible to arrange a traditional second charge (a secured loan).
As a workaround, some lenders offer micro-mortgages as an alternative, allowing successful applicants to access the funds they need. These applications are processed similarly to secured loan applications, resulting in much faster processing times than traditional mortgages and often completing more quickly than standard secured loans.
When applying for a secured loan, most mortgage lenders require us to seek their permission to process the second charge. They then grant this permission in writing, referred to as “consent to a second charge.” While most mortgage lenders are comfortable granting second charges, there are rare occasions when a mortgage company may decline. This can be for various reasons, and in some cases, certain mortgage companies automatically decline all second charge requests.
However, we do work with reputable lenders that can offer secured loan solutions even if you do not have consent from your mortgage provider.
This is typically done through something called an equitable charge. An equitable charge grants certain rights over the property, while still allowing you to retain ownership and access funds.
These types of arrangements tend to be riskier for lenders, as the legal aspects can be more challenging to enforce. As a result, this means loan options can be limited, although there is usually a solution available to suit most parties.
If you are unsure about getting consent from your mortgage provider or have been turned down before, we can give you more details about equitable charges and your eligibility to obtain one.
In these types of scenarios, taking out an additional secured loan would see it referred to as a “third charge”, which is an option provided by several of the lenders we work with.
As with any secured loan, you will need to meet the lender’s eligibility criteria, which includes undergoing an affordability assessment, credit checks and property valuation.
Taking out a third charge loan means that you already have a first and second charge against the property, so the lender will want to establish that you have enough available equity to use as security.
In the event of a default, third charge loans are given a lower priority, which increases the risk for the lender. Depending on the lender and your circumstances, this may mean that there are higher costs involved and stricter eligibility rules in place.
Being aware of the benefits and risks of third charge loans can help you make a more informed decision about what to do next:
Benefits
Risks
It’s important to weigh up the pros and cons of applying
Getting a quote won’t affect your credit score
We’re extremely proud to be rated ‘Excellent’ for our service standards. We’ve helped thousands of customers across the UK over the last 15 years to find the right finance for their needs – no matter how complicated the circumstances. And we look forward to helping you.
Understanding how second and third charges work can feel daunting, even if you have enquired about these types of loans before. Taking out any type of secured loan is a big commitment and a decision that shouldn’t be taken lightly, so it’s important to have access to the right skills and expertise that can help you make an informed choice.
At Willows, we are always available to answer your questions about second and third charge loans. Our advisors can guide you through the process and help you find the right lending solution that suits your needs. Give us a call today on 01656 766 158 to find out more.
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LOANS ARE SECURED AGAINST PROPERTY. THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED UPON IT.
Willows Finance is a credit broker not a lender using a representative panel of lenders. We work with a Panel of Lenders whose particulars will be supplied upon request to find a potentially suitable arrangement for your consideration.
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Willows Finance Limited
Brocastle, Bridgend, CF35 5AS
Authorised and regulated by the Financial Conduct Authority
Firm Reference Number: 670052
Company Number: 6678545 (Registered in England and Wales)
This document outlines the services we provide. If you need clarification, please contact us at 01656 766158.
We offer first and second charge regulated mortgage contracts for business or personal use.
Other finance options may include:
Regulatory Status:
We offer an advised mortgage broking service and provide enough information for you to make an informed decision.
We are not independent financial advisers. Free debt advice is available from the Money Advice Service.
You can view our privacy policy at: https://willowsfinance.co.uk/privacy-cookie-policy/.
Lenders may also have their own privacy policies which will be provided to you.
We charge a broker fee upon loan completion. The average fee is approximately 5%, depending on your situation.
Fee details:
No refund is offered after completion. You may pay upfront or add the fee to your mortgage. Fees and commission will be detailed in your ESIS and Mortgage Agreement.
You will receive a Mortgage Agreement and an ESIS document detailing:
You may cancel your application anytime before completion without any charge. Mortgages cannot be cancelled after completion.
Missing payments can lead to charges, repossession, and negative impacts on your credit rating.
Consolidating debt may result in higher long-term interest. Securing debt against your home increases risk.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loan secured on it.
If you wish to complain, contact us at:
Willows Finance Limited
Brocastle, Bridgend, CF35 5AS
Tel: 01656 766158
You may be able to refer your complaint to the Financial Ombudsman Service.
We are covered by the FSCS. You may be eligible for compensation of up to £85,000 per person per firm for mortgage advice and arranging.
More info: www.fscs.org.uk
After processing your application, you’ll receive a Mortgage Agreement and have a 7-day reflection period.
Contact us during this period with any questions. To proceed, sign and return the agreement.
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