A simples guide

Getting a second mortgage

If you’re a homeowner, you can take out a second mortgage. In fact, you can take out as many mortgages as you can afford - provided you meet the criteria laid out by your lender! There are numerous reasons for taking out a second mortgage and this article will outline them. We’ll also cover some of the finer details of the process and who is eligible.


What is a second mortgage?

By definition, a second mortgage is a loan of over £1000 taken on top of the first mortgage, against the equity in your property. You might want to get a second mortgage for a number of reasons, these include:

- Debt consolidation

- Home improvements

- Healthcare costs

Whatever your reason for taking a second mortgage on your home, make sure that you understand the costs involved and whether you can afford them. As with anything you borrow against your house, failure to pay may lead to you losing your home. Remember to consider if the second mortgage will still be affordable further down the line.

As the name implies, a second mortgage will mean that you have two mortgages on your home. While you must be a homeowner to take out a second mortgage, you don’t necessarily need to live in the home you’re securing the loan against, it could be a buy to let property that you own.

You’ll need to determine how much equity is in your current home and decide how much money you would like to secure against that value. The amount lenders offer can vary depending on who your provider is but between 75%-100% of the potential equity is a good starting point. 

monopoly houses and money

Are second mortgage interest rates higher?

The amount that you can borrow through a second mortgage depends on the equity that you have in your property. The equity is the property’s value minus the amount owed on the first mortgage. For example, a £200,000 home with £100,000 remaining on the mortgage offers £100,000 in equity for a second mortgage. While working out how much you want to borrow with this equity secured loan (second mortgage), it is important to remember that the interest will often be higher on your second mortgage. Sometimes it can be more cost effective to re-mortgage rather than take out a second mortgage as the interest rates on second mortgages are often higher.

This increased interest rate needs to be considered when you’re working out whether you can afford the repayments on your second mortgage. If you think that there is any chance that you’ll struggle, it may be wise to reduce the amount borrowed, re-mortgage or opt out of taking a second mortgage altogether.

house and piggy bank

Can I get a second mortgage to start a business?

The equity in your home that is released by taking a second mortgage can be used to start a business. Before you consider taking out a loan against your property, consider some business fundamentals:

- How much will opening your business cost?

- Is there a market for your business idea?

- Is it likely to remain profitable in the long-term?

- Will you need to hire an accountant, a bookkeeper, or a solicitor?

- If you go into business, will you still be able to afford your mortgages (remember that you will have two)?

As long as the points listed above are met, you can begin approaching possible lenders to release some equity from your property to fund your new business venture.

Now you need to determine how much equity is in your home and then decide how much money you would like to secure against that value. The amount that a lender will offer varies between providers, but between 75%-100% of the potential equity is a good starting point. Once you’ve done this, speak to the provider you’re opting to take your second mortgage with and go through the necessary paperwork.

Once all of this is done, you will be ready to start up your very own business!

How can I get the best second mortgage rates?

You can ensure that you get a fair second mortgage deal by using our comparison service, we’ll do all the leg work for you and provide you with a list of options to suit your needs. All you need to do is work out what options we’ve provided are best for you and you’re half way there! 

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