SECOND charge mortgages in the UK are becoming increasingly popular and they have a range of uses including home improvement and debt consolidation.

Second charge mortgages, also known as ‘second mortgages’ are mortgage products which run alongside first charge mortgages, which are known to most. However, in order to acquire a second charge on your property you will need the agreement of your first mortgage lender.

A further mortgage is typically used in the form of home improvement loans and debt consolidation, unlocking additional equity in your property that you are likely to have built up over the many years of paying your mortgage.

Home improvement mortgages

Home improvement is a well-established way to not only upgrade features in a property, but to also increase the value of properties. For example, a loft conversion can add as much as 20% to the value of a property. when it comes to second mortgage, lenders may well be willing to lend against a portion of equity in the property so that the overall value can be increased.

Increasing the value of their property means that the borrower can then remortgage and clear the second mortgage.

Debt consolidation mortgages

Debt consolidation loans entail the borrower taking out a loan which then pays off multiple debts. The benefit of this is that with numerous debts paid off by a single product, the borrower can focus on a single repayment which is much more manageable and sometimes even more affordable.

When it comes to second charge mortgages, this will vary on a case by case basis and lenders will scrutinise your financial position and how another mortgage may impact your property and your financial circumstances.

What happens if you fail to repay a second mortgage?

Although first charge mortgages always take precedence over second charge mortgages, should a borrower fail to meet their obligations and keep up repayments on a second mortgage, the lender of the mortgage will more than likely begin repossession proceedings to seize the property to recoup their losses.

However, the second mortgage lender will first need to repay the outstanding mortgage loan of the first charge lender with what is left used to repay the second charge loan.

Failing to repay any loan, mortgages included will also badly affect you credit rating and therefore credit worthiness for future loans and lines of credit, so it is important that you always keep up with repayments and don’t take out loans and mortgage which you may not be able to properly and fully afford.