Second Mortgages: Frequently Asked Questions

Question: I don't understand why a second mortgage is different to a first mortgage – after all, they are both secured on my home. Why should one cost more than the other?

Answer: Second mortgages have higher interest rates because there is more risk that the lender will not get all of their money back.

The reason for this is that if you get into arrears on your mortgage, legally, your first mortgage lender will have priority on any money that is available. Only when their demands have been met will your second mortgage lender get a look in.

Likewise, if your home is repossessed, the first mortgage lender's loan will be repaid before the second mortgage lender's loan – increasing the chances that there will not be enough money to completely pay off your second mortgage.

Question: What are the income requirements for a second mortgage?

Answer: Income requirements for second mortgages can vary quite widely.

Some lenders might be quite flexible – especially if the loan is for debt consolidation, for example.

Other lenders will insist that you have plenty of spare income after your existing commitments before they will agree to secure a second mortgage on your home.

Your credit rating could also impact your income requirements – the best way to find out more is to talk to a mortgage broker and explain your situation.

Question: Can anyone get a second mortgage. What if I have a bad credit rating?

Answer: Having a bad credit rating should not prevent you being able to get a second mortgage. However, it might restrict your access to some of the lowest interest rates.

If you have had credit problems in the past, a specialist independent mortgage adviser for bad credit will be able to make sure you get the best deal available and are not penalised too much for your bad credit rating.

Question: Can I move house when I have a second mortgage?

Answer: You can, but you will have to be able to pay off the second mortgage when you sell your home, or secure it on your new home.

Either way, you will probably have some fees to pay and should talk to your second mortgage lender about moving before making any decisions.

Question: How much can I borrow on a second mortgage?

Answer: Second mortgages are usually for fairly large amounts – from around £15,000 upwards. If you need less than this, consider a personal loan, which doesn't need to be secured on your home.

The amount you can borrow will normally be limited by the amount of equity (profit) in your property. In other words, the difference between the value of the property and the amount you owe on your first mortgage.

Question: Do I have to tell my first mortgage lender when I take out a second mortgage?

Answer: Yes. You must tell them – in fact, they have to agree with the second mortgage loan, or you may not be able to take it.

Likewise, you must tell your second mortgage lender the full details of your first mortgage.

Question: What can I use a second mortgage for?

Answer: Second mortgages can be used for a range of things – for example:

• Home improvements

• Debt consolidation

• Business startup

• Buying a second home, or a renovation project to sell on

In reality, you can use a second mortgage for almost any purpose – as long as you can afford to pay it off and have enough equity in your home.