Second Legal Charges Explained
Second legal charges, also known as second mortgages or second charge loans, refer to borrowing a second loan against a commercial or residential property that you own.
Many businesses and households in the UK use second legal charges as a way to secure extra funding for household debts, home improvements or business expansion.
How does a second legal charge work?
The idea is that it is the ‘second charge’ against your property, so your first charge would typically be your mortgage, since this is the first thing that gets charged each month – with the second charge being the second payment taken out.
You can usually borrow a little less with your second legal charge than your first main charge or first charge mortgage – since the lender is now second in line to receive funds. You can also have a third charge if you require additional funding on top, although this is less common.
What is the eligibility?
To be eligible for second charge, you typically need to demonstrate a good track record at paying off your first charge mortgage and being up-to-date with mortgage repayments will certainly help your eligible. Both employed and self-employed individuals can apply and your property will usually be subject to valuation to ensure that it is still growing in value and does not have any detrimental issues such as subsidence.
What are the product features?
Products ranging from £1,000 up to £5 million are available from your local bank, initial mortgage provider or a specialist lender. You can borrow up to 70% LTV through providers such as MT Finance, Precise Mortgages or Masthaven, and this is slightly less than your first charge would may be up to 80% LTV.
Second legal charge terms range from 1 to 24 months but may last several years depending on the provider or bank you apply with. Repayments are typically made in equal monthly instalments or you can request different payment terms such as interest only or rolled up.
A second legal charge is secured against your property and failing to keep up with repayments on time will put your property at risk. Although the first charge provider will be able to access more equity, a second charge lender will be able to claim whatever equity that is owed to them.
Can I apply with bad credit?
Some lenders may be willing to take a view on adverse credit histories. Since the loan is secured, this will help your application if the property is valuable and continues to grow in value. Being up-to-date with existing mortgage repayments will be key to support your application.