The above terms all describe the same type of loan – one that is secured on your home or buy to let behind your standard mortgage. So what are their uses and why is now a good time to consider them?
2nd Charge loans, as they are most commonly called, are undergoing a major change. Since March, they have become regulated in the same way as all other mortgages by the Financial Conduct Authority (FCA) and this has meant that they are no longer largely unregulated and therefore open to some forms of abuse. This has resulted in a reduction in rates and fees so that they have become a much more competitive solution.
To qualify, you must be a homeowner (or buy to let owner). The loans are an uncomplicated way of borrowing against your property without changing your existing main mortgage. Put very simply, they are a personal loan that uses any free equity in your property as security, but as they are secured against your property, they can be cheaper than personal (unsecured) loans. Loans can range in size from £5,000 upwards and can often be arranged very quickly.
Their uses are widespread but they are predominantly used as a way of raising money without remortgaging away from your existing lender. For example, a 2nd Charge loan may be beneficial for those who have a particularly good existing tracker or fixed rate (perhaps with early redemption penalties) but need to raise some additional cash. In addition, we arrange loans for;
- Debt consolidation to reduce monthly commitments such as credit cards into one monthly payment
- Self-employed with limited trading accounts
- Freeing up a lump sum for any legal purpose (home improvements, to buy a car, holiday, wedding, tax bill or school/university fees)
- Deposit for buy to let purchases
- If your credit position has worsened – instead of paying a higher interest rate on your entire mortgage, you would only pay the new rate on the additional amount borrowed
Interest rates, fees and penalties can vary significantly between loan providers and as a consequence, seeking professional independent advice is very important. Many of the lenders do not operate on the High Street and are therefore only accessed via authorised mortgage advisers.
Local, face to face, independent mortgage and loan advice can smooth the whole process and we would be delighted to help.
Paul Hardingham and Tony Ibson are Mortgage and Protection Advisers at Innovate Mortgages and Loans. Both have over 20 years of experience advising individuals and businesses across the North East of England. They can be contacted for bespoke advice at firstname.lastname@example.org or email@example.com or call 0191 223 3514.
Think carefully before securing other debts against your home.
Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it