Second charge loans allow someone to use equity in a property as security for another loan, despite having an existing mortgage. These commercial loans can be used for almost any purpose, and can be secured by both property and land.

They are sometimes referred to as second charge mortgages, although they are effectively secured loans.

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    When to Use Commercial Second Charge Loans?

    Second charge loans are generally used for development, building or construction purposes in some of the following areas:

    • Purchasing property for investment purposes
    • Partially developed property
    • Industrial, manufacturing or office units for lease
    • Land Projects with restricted planning

    Outside of property development, companies take second charge loans in order to:

    • Raise working capital
    • Facilitate expansion plans
    • Purchase key manufacturing equipment
    • Complete major repairs to existing property
    • Needing a Quick source of funds
    Second Charge Mortgage Guide by Business Expert

    How Can I Get a Second Charge Loan?

    (1) Make Contact with us via the simple contact form or email 

    (2) We’ll schedule a call, and then send you our simple application form

    (3) Each application is reviewed by underwriters who establish the level of risk and undertake a credit check

    (4) Once the underwriter has given the green light, a valuation of your property is arranged

    (5) Once the legal documentation has been agreed, an official report by solicitors on the status of the property known as the Report in Title is sent to you

    (6) Underwriters complete their full review

    (7) Once the second charge loan is agreed, the provider will transfer you the funds.

    How Much Can I Borrow on a Second Charge Loan?

    This would depend largely on the amount of equity you have accrued in your current property.

    Lenders will still check your credit and investigate your ability to repay the loan each month, but how much you can borrow will depend on the capital accrued in the property.

    For example, if you bought a house for £300,000 and have £200,000 left to pay on the mortgage, you will have £100,000 equity. You could therefore negotiate a £100,000 second charge loan based on this security.

    When is a Second Charge Loan Preferable to Remortgaging?

    The most common situation would be when a business’s credit score has dropped sufficiently that the second charge loan becomes a cheaper option than remortgaging.

    A second reason is if the existing mortgage comes with a particularly high early payment fee, which would make remortgaging prohibitively expensive.

    How Long Do Commercial Second Charge Loans Take to Arrange?

    From the moment your application is submitted, the loan takes approximately one month to arrange.

    Can I Get an Interest Only Second Charge Mortgage?

    Both repayment and interest only second charge loans are available, depending on the finance provider and your level of credit.

    What the Advantages of a Second Charge Loan?

    • Fast to arrange, offering access to capital in less than 4 weeks
    • Available to companies with a poor credit rating
    • Can help avoid having to face an early repayment charge on an existing mortgage
    • Useful for increasing working capital for a business 
    • A good solution for debt consolidation
    • Can be used for HMRC tax bills
    • Can fund property development or investment

    Is Second Charge Lending Regulated?

    Second Charge lending has been regulated since 2016, as per the Mortgages and Home Finance: Conduct of Business sourcebook (MCOB).

    This means that lending processes of any firm responsible for offering second charge loans is closely scrutinised by the Financial Conduct Authority (FCA), especially in regard to their affordability calculations and lending decisions.

    One of the FCA’s chief goals is to minimise the potential for customer harm and irresponsible lending.

    Will a Second Mortgage Hurt my Credit?

    Any type of lending is going to impact your credit in some way but the degree to which it does so will depend on multiple factors such as your own credit history, and the sums of money involved.

    During the application process, the lender is going to assess your credit history to make sure you can afford the repayments. It is possible that a second mortgage could place you in a higher risk category meaning your credit score will dip for the 6-12 month period subsequent to the loan’s acceptance.

    Is a second mortgage a good idea?

    Of course this depends on individual circumstances, but in some cases a second charge loan can save you money. While it will come with a higher interest rate than a first mortgage, it can help pay off even higher interest items such as debts or credit cards.

    As a secured loan, the interest rates are typically in the single digits since the risks are lower for the lenders.

    Can a Second Charge Holder Force a Sale?

    As with any secured loan, the lender’s ‘security’ is the fact they can force the sale of your property, should you default.

    If the home is repossessed due to repayment arrears, the first charge holder will have the priority claim. Either lender has the right to force sale, however, when the terms are not being met.

    Before before any money using your property as security, you need to be fully apprised of the risks of doing so, especially if that property represents your primary residence.