Introduction
A second-charge mortgage is a secured loan that ranks behind the first-charge mortgage on a property’s title. It leaves the first mortgage unaffected while creating a new, subordinate charge in favour of the second lender, typically with its own repayment schedule. For landlords, it is a way to raise capital for deposits or refurbishments. Second-charge loans are typically associated with higher interest rates than first-charge loans and potentially also tighter affordability checks. This article provides an introduction to how second-charge borrowing works for BTL landlords and the risks to plan for.
How Second-Charge Mortgages Work
With a second charge, your current first mortgage remains unchanged; the new lender takes a “second priority” charge over the same property. On sale or repossession, the first charge lender is repaid before the second charge lender. In practice, you end up with two simultaneous mortgages and two monthly payments. The first-charge lender will need to provide consent to the second-charge lender for registering a second charge against the property. If they do not, obtaining a second-charge loan may not be possible, unless the second-charge lender is happy to hold an unregistered equitable charge, possibly accompanied with registered RX1 (restriction on sale) and AN1 (agreed) notices on the register.
