Second charge mortgages or an unsecured loan?

Recent figures released by the Finance and Leasing Association (FLA) have confirmed a 24% rise in Second charge mortgages in the first quarter of 2019 compared to the previous year. There were 25,243 new second charge mortgage agreements in the 12 months up to April 2019, an increase of 14% year on year. During the first quarter of 2019 there were 2,206 new agreements which equates to the 24% rise.

The data released by the FLA also showed a significant reduction in the number of second charge mortgage repossessions, with a 47.8% reduction in the first quarter of 2019, compared to the same time period in 2018. This type of mortgage repossession accounted for 0.08% of total repossessions in the year up to March 2019.

So why the growth in second charge mortgages?

Second charge mortgages are a secured loan and it seems the growth may be useful to borrowers with less than perfect credit who cannot obtain an unsecured loan or a remortgage form their original lender. They are often used for debt consolidation or to fund major home improvements. This type of lending isn’t suitable for everyone, but it does make sense in certain circumstances, for example:

Where a borrower has a high early repayment charge.

A borrower’s credit rating has changed since you took your first charge mortgage.

When a borrower has a low rate of interest on their mortgage and a remortgage would result in paying a higher rate across the whole balance.

If an existing lender does not have an appropriate product or these are more expensive than a secured loan.

Whilst this type of ending is good for securing a large loan, often up to £500,000 they can be highly risky as you are putting your property up as security against the loan. Borrowers should consider all options before considering a second charge mortgage, including unsecured loans.