Mortgage products available in the UK marketplace are predominantly referred to as either first charge or second charge mortgages. A first charge loan is one that is secured on a residential or commercial asset in its entirety and is a contract between a lender and a borrower to repay a loan advanced over a pre-determined timescale.
It is common that a lender will insist upon certain restrictions for the duration of the loan in order to protect their loan. Restrictions will often include those relating to further borrowing or will extend to property usage or development that could adversely affect the value of the property asset.
Second charge mortgages are effectively the second mortgage on a property. In cases where there is a second charge mortgage, there will be two mortgages on a single property [the first and second ‘charge’]. Second charge mortgages have been traditionally used for the purposes of home improvements or debt consolidation and in instances where the existing first charge mortgage lender is unable or unwilling to underwrite an additional loan.
If you are arranging a second charge mortgage you will require the consent of your existing lender to allow this further borrowing to sit behind your existing mortgage. In the event of loan default and repossession, the mortgages will be repaid from the sales proceeds in order of priority. It is for this reason that historically second charge mortgages have been more expensive as these lenders are taking more risk that their loan may not get repaid.
It is possible to arrange both first and second charge mortgage on residential and commercial property in instances where either a traditional term-loan mortgage is sought or where short term bridging or development finance is required. Regardless of property asset or type of mortgage sought, it is advisable to seek the assistance of an experienced intermediary who has access to a wide selection of lenders active in the mortgage market.