Second Charge

smith08

Hi,

Complete novice looking for some pointers please

Looking to borrow more, approx 25k (for home improvements) as a second charge on our exsisting mortgage with existing lender

Current situ:
Property value £336,000
Outstanding mortgage £179,000
Mortgage term : 23 years left

Had a mortgage for 12 years already and never remortgaged or borrowed more before via mortgage

Household combined salary £74,000 per annum

2 dependents 

current debt outside of mortgage :
Credit card 9k
loans x2 14k 

credit ratings both good 650 & 690 out of 700

Our lender (Santander) has offered us the following options:

25k if we increase our existing mortgage term to retirement age. New term would be 36 years instead of current 23 years... 

or 

£6k extra borrowing over 15 years as a second charge 

or 

£9k over current term of 23 years 

They couldn't break down the drastic varying options but said it's based on affordability.. For 6 or 8k we would just do a 5 year personal loan.. 

Part of me thinks we are being persuaded to increase our mortgage to benefit the company as I felt our equity and earnings were favourable.. 

Does this sound abit off and what would potential other options be for borrowing for home improvements, outside of a personal loan. 

Thanks in advance for any advice, feel a little deflated after speaking with Santander 

ACG

Extend the term to a length you are happy with and then just overpay the mortgage?
You can usually overpay by 10% a year. £200k mortgage would mean you could overpay by around £1500 a month for the first few years. 

400ixl

£23k of unsecured debt will be reducing your affordability by reducing your disposable income quite a bit. Equity only really comes into the LTV calculation, not so much of the amount they will loan.

Given your income and debt + existing mortgage, something around £25k over a full term mortgage would seem in the right ballpark, so I don't think they are low balling.

ACG

Ive just realised, Santander I am pretty sure are one of the few lenders who will still count your debt as a commitment even if it is being paid off. 

Thrugelmir

smith08 said:

They couldn't break down the drastic varying options but said it's based on affordability.. For 6 or 8k we would just do a 5 year personal loan.. 

Part of me thinks we are being persuaded to increase our mortgage to benefit the company as I felt our equity and earnings were favourable.. 

The lender under it's duty of care will be factoring the cost of servicing the mortgage debt if interest rates were to rise. Affordability encompassess a number of what if scenarios not a just a question of the status quo being maintained. Your existing levels of personal debt will be a factor in terms of the options offered. 

Your credit ratings are irrelevant. Spend now pay later is a lifestyle choice. Life can change very suddenly. Being highly indebted is an issue for many people as financial pressures quickly mount.  

smith08

J_Wilko said:

Without knowing your mortgage rates, its hard to determine which option would be best, or whether there is more options out there for you.

If I were you, I'd get in touch with a mortgage advisor. Promise Money sorted out my second charge when I wanted to build an extension. Here is their number if you would like to ask a few questions: 01902 585020

I'd say you could be looking at a remortgage. It could also be a secured loan you're after. Not 100% sure though

Hope this helps  

That is really helpful, thank you. Our current mortgage rate is 1.4% 7 months into a 5 year fixed deal. 

I'm thinking we might need further advice from a broker etc. 

My husband spoke with Santander again today and they did say their stress tests are quite high due to current economic climate

Thanks again for reading and for advice 😊

smith08

ACG said:

Extend the term to a length you are happy with and then just overpay the mortgage?
You can usually overpay by 10% a year. £200k mortgage would mean you could overpay by around £1500 a month for the first few years. 

Thank you, the advisor at Santander did advise this to my husband. 

I don't know what it is, but something about increasing the term just makes me feel like it isn't the right thing- I think it is perhaps my limited understanding but I will look into how the overpayment could work to our favour. 

I just liked the idea of being mortgage free in my 50s 😆 

Thanks again for reading and for advice 😊

smith08

Thrugelmir said:

smith08 said:

They couldn't break down the drastic varying options but said it's based on affordability.. For 6 or 8k we would just do a 5 year personal loan.. 

Part of me thinks we are being persuaded to increase our mortgage to benefit the company as I felt our equity and earnings were favourable.. 

The lender under it's duty of care will be factoring the cost of servicing the mortgage debt if interest rates were to rise. Affordability encompassess a number of what if scenarios not a just a question of the status quo being maintained. Your existing levels of personal debt will be a factor in terms of the options offered. 

Your credit ratings are irrelevant. Spend now pay later is a lifestyle choice. Life can change very suddenly. Being highly indebted is an issue for many people as financial pressures quickly mount.  

thank you for your comments, I think coupled with the current climate it isn't helping

smith08

ACG said:

Ive just realised, Santander I am pretty sure are one of the few lenders who will still count your debt as a commitment even if it is being paid off. 

thats helpful as we have recently paid off an older loan. 

Thank you 

smith08

400ixl said:

£23k of unsecured debt will be reducing your affordability by reducing your disposable income quite a bit. Equity only really comes into the LTV calculation, not so much of the amount they will loan.

Given your income and debt + existing mortgage, something around £25k over a full term mortgage would seem in the right ballpark, so I don't think they are low balling.

Thank you for your help. I think my expectations were perhaps too high, I naively presumed we would be able to borrow the amount over our existing term no issues. 

I think we will just have to consider the longer term 😊

400ixl

Getting rid of the current unsecured debt will work as a multiplier on what you can borrow. Are you able to reduce this before you need to borrow for improvements?