Second Charge Mortgage for People with Bad Credit

Wondering about a second charge mortgage, but worried about your bad credit? Don’t worry, you’re not alone. Each month, over 6,900 people visit our site seeking guidance on secured loans.

In this article, we’ll cover:

• What a second charge mortgage is and how it works.
• The true cost of a bad second charge mortgage.
• The pros and cons of a second charge mortgage.
• How to apply for a second charge mortgage.
• Ways to improve your credit score.

We understand the concerns you might have about the specifics of a second charge mortgage, especially with bad credit. But, with the right guidance, it’s possible to secure a second charge mortgage.

Let’s dive in!

Can you get a second mortgage with bad credit?

It is still possible to get a second charge mortgage with bad credit. In fact, it is usually easier to get any secured loan with bad credit because the lender views you as less of a lending risk if the credit agreement includes an asset as collateral, they can repossess if you stop making repayments.

Instead of having to go through a lengthy and uncertain process in the courts, they have an automatic right to seize the home and sell it in specific circumstances. This is what makes getting a second mortgage with bad credit easier than getting other personal loans with bad credit. 

Second charge mortgage bad credit example

There are multiple options when searching for second charge mortgages for people with bad credit. Just one example is Simply Adverse. This lender, at the time of writing, is offering a second charge mortgage if you have a poor credit history. They are just one of a bunch of options, and you should always do your own research before deciding where to apply. 

Using comparison websites can also help you cut through the noise and find the most suitable and beneficial second mortgage for your needs.

Can a lender refuse a second charge mortgage?

Just having enough home equity to borrow against is not always enough to get a second mortgage. A lender can refuse an application for a second charge mortgage if they believe you cannot afford the repayments or if poor credit history causes them concerns. 

This is why you should check your credit score before making an application for a second mortgage. You might have bad credit unknowingly – and you could try and improve it before applying. 

How to get a second charge mortgage?

Second mortgages are offered by specialist mortgage lenders, big banks and household-name building societies. They may not be advertised as second charge mortgages, but they could be advertised as home equity loans or secured homeowner loans.

As mentioned earlier, only use financial services and products that are authorised and regulated by the Financial Conduct Authority. 

What happens if you can’t afford your second charge mortgage?

If you have multiple missed payments on your second mortgage and no way of keeping up, the lender can seize the property and sell it to raise money and pay off your debt. This is why you should think carefully before agreeing to a second mortgage. 

If the home is repossessed and sold, the money raised will first be used to pay off the first mortgage lender. This lender is the priority. Once the first mortgage balance has been repaid, the second charge mortgage lender can then recover the debt owed to it.

Any remaining money is given to the homeowner, while any underpayments keep the debt still alive, which could result in serious problems and even bankruptcy. 

There’s also a chance that the second mortgage lender will not pursue this action if they think your property has decreased in value and they won’t recover all of the debt. 

Can you borrow more on a mortgage with bad credit?

Refinancing a mortgage is still possible if you have bad credit. Those with a good or excellent credit score may be able to borrow more against their home equity with a more appealing interest rate, but those with bad credit can still consider this option. 

Choosing to refinance your mortgage instead

An alternative method of raising funds is to remortgage your existing mortgage and ask for more money borrowed against home equity. If you switch your existing mortgage to a different lender to do this, you may have to pay an early repayment charge on the first mortgage.

For example, if you have a £100,000 mortgage and £100,000 home equity (£200,000 home), then you could refinance your mortgage with your current or a different lender so you borrow extra against home equity. If you were to borrow against £35,000 equity, your new mortgage would be for £135,000 plus fees. 

Home Equity Line of Credit

You could also consider a  Home Equity Line Of Credit (HELOC) which might be a better alternative to remortgaging as HELOC interest rates are generally lower so it is a cheaper way of borrowing against the equity in your home. Repayments are also generally more flexible. You can use an online HELOC calculator to check out whether it could work for you.

The Role of Mortgage Brokers

In my experience, it can be worth using a mortgage broker to help you find the best deal, especially if you have bad credit.

How to improve your credit score

If the reason you need to borrow money is not urgent, you may prefer to try and improve your credit file before applying. Here are some short and long-term methods of doing just that:

1. Check your credit file and look for mistakes – you could be applying with an error on your file that will wrongfully hold you back. You can have this removed, and your score increased. 
2. Register on the electoral register – by doing this, you verify your idea, which might give your score a little boost.
3. Reduce your credit utilisation – your credit utilisation is the amount of credit you are using on revolving credit, such as a credit card. You won’t have to get rid of your credit cards, but by simply borrowing less of your available balance, you can improve your score over time. 
4. Avoid other debts and arrears by budgeting effectively. 

What should I do if I am struggling to pay my second charge mortgage?

If you are having difficulty paying your second mortgage, you should speak with the lender as early as possible.

Repossessing your home is usually not an ideal scenario for them either. They may be able to work with you to change repayments so you pay less but for longer. If this makes it more affordable and allows you to keep your family home, it’s worth picking up the phone.

Debt advice is also available from exceptional UK debt charities.