A Second Charge mortgage is, as the name suggests, a separate and additional mortgage to the homeowner’s main (or first) mortgage.

Second charge mortgages (sometimes known as ‘Homeowner Loans’) are loans that are secured against the borrower’s residential property, and as such, are available only to homeowners. In common with remortgages, second charge mortgages are sometimes used by homeowners to raise money.

When considering a second (‘further’) advance, the lender will take into account the value of the borrower’s home, less any mortgage owed on it. The difference between the two amounts is known as ‘equity’ and provides the lender with security against the loan. If for example, the home is estimated to be worth £300,000 and the amount remaining to be paid on the mortgage is £100,000, the equity is £200,000. In addition to the amount of equity that’s available, the lender will consider the borrower’s ability to service both mortgages if interest rates were to rise.

In return for not receiving any interest on their savings, the homeowner can reduce their monthly payments or shorten the mortgage term, an arrangement known as ‘offsetting’. An Offset mortgage is only available where both the mortgage account and the savings account/accounts are with the same provider.

For example, on a £200,000 mortgage, if the homeowner offsets £20,000 of their savings against their mortgage, he or she would pay interest on the outstanding balance — £180,000. As the rates of interest charged on mortgages are usually higher than those paid on savings accounts, offsetting can be more financially advantageous to the borrower.

Furthermore, homeowners can use an Offset Mortgage to either shorten the term of their mortgage or reduce the monthly repayments. Borrowers who wish to shorten the term of their mortgage would base their monthly repayment on the full £200,000 mortgage and pay more each month than the lender requires them to. Or the homeowner could base their monthly repayment on the lower (offset) figure of £180,000, which would reduce the monthly repayment but the term of the mortgage would remain the same.

A cashback mortgage is an arrangement where the lender pays or rebates to the borrower a sum of money (or some other form of financial benefit/incentive) either on completion of the mortgage or at a later stage. The borrower can use the cashback to help pay some of their property purchase costs such as legal and surveying costs, stamp duty, removals charges, or home improvements and repairs.

The amount of cashback the borrower will receive depends on the lender’s requirements. Sometimes it is calculated as a percentage of the total mortgage advance and will therefore vary in value, or it may be a fixed and non-negotiable amount. Some mortgage providers insist that the borrower already holds (or opens) a current account with them before they qualify for cashback.

Cashback mortgages are usually associated with standard variable rate or tracker mortgages, although the rate of interest may or may not be higher. As well as applying an early repayment charge on these mortgages, if a cashback mortgage is redeemed before the end of the agreed term, the lender may ask the borrower to repay all or part of the cashback.

With a tracker mortgage, the rate of interest is linked to a specified index, usually the Bank of England’s (BoE) base rate of interest. Whenever the base rate changes, so does the tracker’s interest rate and therefore the borrower’s monthly repayment. Tracker mortgages are a type of ‘variable rate’ mortgages.

When interest rates are low, the borrower’s monthly repayment might be less than it would be on a different type of mortgage, such as a fixed-rate or standard variable rate mortgage. But when interest rates are high, the reverse is true. And as the rate is likely to vary, the borrower can never be sure exactly when or whether their monthly repayment may change.

In a fixed-rate mortgage arrangement, the interest rate is fixed for a pre-determined period of time, 2, 3, 5, and 10 years are commonly available, but other options do exist. The monthly mortgage payment will not change, no matter whether the Bank of England or the mortgage provider raises or reduces interest rates. For the borrower, the advantage of a fixed rate deal is that they know exactly how much their monthly repayment is going to be each month and for how long.

In some instances, the interest rate charged on a fixed-rate mortgage can be higher than the interest rates charged for other types of mortgages. The borrower may also have to pay an arrangement fee to set up a fixed-rate deal. Usually, once a fixed rate arrangement comes to an end, the lender's standard variable rate applies.

In a Standard Variable Rate (SVR) mortgage, the borrower’s monthly repayments are based on the prevailing rates of interest their lender charges and not the Bank of England (BoE) base rate. In other words, it is entirely the lender’s decision on the rate of interest they charge the borrower.

Although the rate of interest charged in an SVR mortgage can be heavily influenced by changes in the Bank of England base rate. Whenever the bank raises or lowers the base rate, the lender can do the same, or ignore the change altogether. On occasions, the lender may increase or decrease their rates of interest even if the BoE has not changed theirs. The rate of interest charged on SVR mortgages can often range from 2% - 5% above the base rate - or more.

As SVR mortgages do not involve any special financial inducements, they can be more (or less) expensive than other types of mortgages. And unlike fixed-rate mortgages where the rate of interest never changes, SVR borrowers can never be certain when their monthly repayment may change.

Remortgaging your Property

Whether you are looking at consolidating your debts, raising money for home improvements, looking for a better monthly payment than you currently have, or want to restructure the terms of your current loan - we can help.

Remortgaging can help your financial health in many ways. In simple terms, remortgaging involves moving your current mortgage to a new arrangement, arranged either with your existing lender or with a new lender.

Many borrowers choose to review their mortgage every few years in order to take advantage of the new rates on offer. Those who remain on the same deal for the full term of their loan could lose out by paying more money than they need to. They could also miss out on the chance to finish their mortgage term earlier than originally planned.

THE CORE REASONS TO CONSIDER REMORTGAGING ARE:

To avoid moving home

It can be more convenient and cost-effective to enhance your existing property, rather than move home. This can be financed by remortgaging or a further advance.

Mortgages for First Time Buyers

The prospect of buying your first home could be both daunting and confusing. Our aim is to guide you through the process from start to finish so that you understand exactly what the purchase entails and how much it will cost.

The mortgage market changes all the time, not just in terms of mortgage deals and regulations but also in the way lenders assess loan applications.

Some of the changes have been in the way mortgage lenders assess the suitability of all clients for the different types of loans on offer. They base this decision on a variety of factors, primarily:

Once your mortgage application has been accepted in principal, you may have the option of deciding how you repay the loan: on a ‘repayment’ basis, or on an ‘interest only’ basis.

Repayment mortgage

With a repayment mortgage, your monthly repayments cover both capital and interest on the loan.

As the term continues, the amount outstanding on the loan reduces so the full amount of the loan will have been repaid at the end of the term as long as you have made all your payments on time.

No other repayment vehicle is needed and it avoids the risk of investing (e.g. in the stock market).

If you remortgage, you may be tempted to extend the end repayment date in order to lower your monthly payments. However, this means that the amount you repay overall increases over time.

Professional Indemnity Insurance

Most professionals carry professional indemnity cover. If you sell professional advice, your knowledge or skills, you may wish to consider taking out professional indemnity insurance.

If, for example, you made a mistake or are found to have been negligent in one or all of the services that you provide for clients, they may bring a claim for compensation against you. Professional Indemnity Insurance protects you against compensation actions by a client. Without this insurance, the financial security of your business could be threatened.