Second mortgages: lending soars as Britons struggle to pay off debt

theguardian.com:

Perhaps it’s no surprise with a cost of living crisis raging, but growing numbers of homeowners are opting to saddle themselves with a second mortgage.

Many people are using the money to pay off debts such as credit cards and personal loans.

Others are using the cash to finance everything from home improvements and paying for a wedding to starting a business and even paying a tax bill.

According to industry data, there has been strong growth in second charge mortgage lending. Just over 2,800 second mortgages, with a total value of £133m, were taken out by homeowners in May this year. That is 43% higher by number, and 53% higher by value, than in May 2021.

The mortgage broker John Charcol says it is experiencing an increase in demand as borrowers look to rustle up additional capital.

A second charge mortgage is a loan that allows you to use any equity you have in your home as security. It effectively sits on top of your existing mortgage.

You usually get one from a separate lender – there are a number of specialist firms. It means you will have two mortgages on your home. However, the existing mortgage will always take precedence over the second home loan.

As with any mortgage secured on your property, failing to repay it could mean you will lose your home.

For many homeowners who need to raise extra cash, it is probably a better idea to simply remortgage, or to take out a further advance from the same lender. Or, depending on the circumstances, take out something such as a personal loan.

But for some it would not make sense to refinance their main mortgage – for example, they might be on a particularly good deal or only recently signed up for a five- or 10-year fixed-rate deal. Meanwhile, others don’t have those options