Niche second mortgages starting to rise again

finance through re-mortgaging their property, which is the more orthodox and cheaper form of lending.

However, others may find they are unable to borrow further funds through regular mortgage channels or it may be inappropriate for them to do so. This is where the second charge market finds its niche.

It is an attractive route for people who have bad credit ratings and can’t raise capital through a mortgage.

Second charge lenders don’t credit score and allow more extreme levels of adverse history than the main mortgage market, catering to people with missed mortgage payments, county court judgements or bankruptcy.

The method also typically appeals to those who wish to keep their existing mortgage intact, perhaps because they are on a low interest rate or interest-only deal which could be otherwise affected.

Applications can be turned around in a couple of weeks, so catering for anyone who needs funds fast. For example, to pay unexpected bills or purchase property at auction.

On the second charge market, you’re able to borrow for all sorts of reasons, such as funding business ventures, IVF, paying tax bills or extreme debt consolidation.

It enables you to stretch affordability above what the regular mortgage market allows, is available on both residential and rental properties, caters to complex income situations which can come with self-employment, pensions and benefits, may run for longer than secured loans (up to 30 years) and it is possible to accommodate high loan-to-value lending. However, there are drawbacks. As borrowing the money is via a separate, specialist lender to those on the regular mortgage market the cost is often considerably more expensive. Deals may come with higher interest rates, ranging from 4.1 per cent all the way up to double figures and the set-up and valuation costs tend to be higher too.

This is the main catch but there are others.

Increasing the borrowing against your property, it raises the risk of financial difficulty and potential repossession.

Consolidating debts into a second charge mortgage can increase the term you are paying the debt back over, meaning it can end up more costly overall.

With two mortgages running on your home, if the equity isn’t enough to pay both when you sell the property, you will need to repay the shortfall yourself.

Due to the cost factor second charge lending may not be suitable for smaller loan sizes.

And sometimes regular mortgage lenders won’t grant consent for a second charge to be placed on your property.

My message is this – always research the market and consider whether a second charge mortgage is right for you.

With plenty of alternatives available through regular re-mortgaging and secured loans it is important to consider all your options.

If you are having trouble, seek advice. All mortgage brokers will be able to advise. Trevor Law is managing director of Merito Financial Services, chartered financial planners, based in Solihull. Email:tilaw@meritofs.com