HOW IT WORKS

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Representative example: If you borrow £35,000 over 14 years at a rate of 8.95% variable, you will pay 168 instalments of £418.88 per month and a total amount payable of £70,371.84. This includes the net loan, interest of £30,326.84, a broker fee of £3,550 and a lender fee of £995. The overall cost for comparison is 11.8% APRC variable.

Typical 11.8% APRC variable. Maximum APRC 24.9%

Minimum loan term of 1 year. Maximum loan term of 30 years.

Second charge loans explained

If you already have a mortgage on your current house or flat, there are still ways that you can borrow extra money using your property as security. One way would be to take out a second charge loan, also known as a secured loan. With a second charge loan, the new lender places a charge on your property, and if you are not able to make your monthly repayments and the relationship with the lender comes to an end, it will take steps to recover the money you owe to it by repossessing your property. However, the mortgage lender who has the first charge against your property is paid first and the second charge lender has a claim on any remaining money.

Why might you need a second charge loan?

You might need to borrow money for a whole host of reasons. For example, you might decide to borrow money with a second charge loan to:

• Make home improvements, like a loft conversion, a new open plan kitchen, or a two-storey extension to add a bedroom, bathroom or home office etc.
• Buy a motorhome or your dream car.
• Pay for your dream wedding and honeymoon.
• Go on a round-the-world trip.
• Or to consolidate debts from car finance, credit cards, personal loans or other debts etc.

How do second charge loans work?

Second charge loans tend to be more expensive than first charge mortgages because of the lender's increased risk of not getting their money back. Interest rates on second charge loans also tend to be variable. Variable interest rates are not fixed and can change at any time, meaning that your monthly repayments can increase or decrease at any time. However, variable interest rates tend to move in line with the Bank of England base rate. However, this is not guaranteed and as with other forms of credit interest rates tend to go up more quickly when interest rates increase and more slowly when interest rates are falling.

Second charge loans can be taken out for as little as £10,000 up to about £100,000 or more. The amount you can borrow with a second charge loan will depend on the amount of equity you have in your property, taking into account the size of your existing mortgage.

How to find a second charge loan?

If you decide that a second charge loan is right for you, you need to shop around to get the best deal taking account of the total cost of the loan, including fees and charges. Remember that your house is at risk if you miss repayments, which could also affect your credit rating. You also need to make sure you can afford the repayments on top of your mortgage repayments and any other debts. If your second charge loan has a variable interest rate bear in mind that the amount you have to repay each month could increase significantly if interest rates rise.

Instead of a second charge loan, another option could be increasing the size of your existing mortgage with your current lender or a new lender called remortgaging. See our Guide to Remortgaging. If you want to borrow up to £25,000 (or sometimes as much as £50,000), you could try instead to get a personal loan, also known as an unsecured loan as it is not secured against your property or assets.

If you are struggling financially or think you could be in the coming months taking out further borrowing is rarely advisable, and instead, you should get some free debt advice.

Bridging loans explained

A bridging loan could be useful if you need a large amount of money for a few months, a year or a longer. Bridging loans could give you temporary extra cash if you are buying a property at auction and need the money fast, or if you want to buy a new property and haven't been able to sell your current property, or if you have exchanged contracts on a new purchase and are waiting for the purchase to be completed. Bridging loans with a fixed end date need to be repaid by a specified date, and open-ended bridging loans don't have a specific end date.

You could get a first charge bridging loan if you don't have a mortgage on your current property and a second charge bridging loan if you do have a mortgage already secured against it. You typically have to pay a setup fee of around 2% of the amount borrowed for a bridging loan and bridging loans are relatively expensive costing between 0.5% and 1.5% per month meaning between 6% and 18% per annum. With a bridging loan, you can borrow up to around 75% of your property's value. Bridging loans allow you to borrow upwards of about £25,000 and up to £20m or even £25m depending on your property's value and any debts secured against it.