Many homeowners in Britain are missing out on a mortgage product that could suit their needs perfectly, according to a mortgage expert who says most brokers fail to mention it. Ranald Mitchell, director of Norwich-based Charwin Mortgages, highlighted the 'second charge' mortgage, also known as a secured loan, as an often-overlooked option for those needing to borrow extra money.
Homeowners looking to raise funds—whether for home extensions, unexpected tax bills, or consolidating debts—typically consider only three routes: remortgaging, requesting a further advance from their current lender, or taking out an unsecured loan. Mitchell argues that a second charge mortgage, which is secured against the property but ranks behind the main mortgage, is a viable fourth option that is frequently ignored.
Why brokers overlook second charges
Mitchell explained that the issue lies in the limited scope of many mortgage brokers. He said: “The problem is that many people never hear about it because when they need extra money, most brokers do not bring it into the conversation because their scope of services is limited.” This can lead to customers being pushed towards a full remortgage even when it is not the best route, potentially losing a competitive rate or incurring early redemption charges (ERCs).
He gave an example of a borrower with a £300,000 mortgage on a low fixed rate who wants to borrow an additional £50,000. Remortgaging the entire £350,000 could be costly if the existing rate is much lower than current deals. A second charge allows the borrower to keep the original mortgage untouched and only pay the new rate on the extra £50,000.
Weighing the costs
While second charge mortgage rates are often higher than standard residential rates, Mitchell stressed they should not be viewed in isolation. He said: “The better question is: what is the total cost of all the borrowing? This is known as the blended rate.” The original mortgage remains on its lower rate, so the overall cost can still be lower than remortgaging everything.
However, second charges are not suitable for everyone. Turning unsecured debt into a mortgage-style loan can increase the total interest repaid over time. The real danger, Mitchell said, is when they are not considered at all. He urged borrowers to ensure their adviser evaluates all options, not just defaulting to a full remortgage.
Proper advice is key
Mitchell concluded: “A second charge mortgage arranged properly, with transparent advice, clear comparison against the alternatives, and sensible fees, can be a highly effective borrowing option. The problem is not the product. The problem is when the product is not considered alongside the customer’s first charge mortgage options from the start. Used badly, second charges can be expensive. Used properly, they can be brilliant.”
