Second Charge Mortgage
At Quiddi Compare, we understand that one’s financial circumstances can change and you may not be able to keep up with the repayments of two mortgages. For many, keeping up with the payments for one mortgage is stressful enough, let alone the cost of two mortgages.
Whether it’s falling ill or losing your job, you never know when an emergency can strike and how it can impact your finances. For whatever situation, it is important to know the outcomes of what happens if you cannot repay your second charge mortgage. Below we highlight the most likely implications of non- repayment and what are the most sensible things to do if you cannot repay:
The implications of non-repayment
The Finance and Leasing Association recorded that 827 homes in the UK were repossessed in 2011 due to failed repayments for second charge mortgages. This is the most serious outcome of failing to pay your mortgage. After a number of missed repayments, the bank will be able to repossess your property since a mortgage is secured on your home.
But the way repossession works is slightly different for second mortgages when compared to standard mortgages or other secured loans such as logbook loans.
Firstly, even if you make all the payments for your first mortgage on time, your main residential home could still be repossessed if you do not keep up with payments on your second mortgages. This is because having a second charge mortgages means having two mortgages on your first property.
In the event that the bank repossesses your property, they will sell it at market value to cover the cost of your outstanding balance. The first mortgage is always paid off first and any remaining balance is put towards paying off the second mortgage. If the money leftover from the sale of your house does not cover the cost of your second mortgage, you will still be liable to pay the balance.
Damage to your credit score
Missing repayments on your mortgage will be recorded on your credit file. The information is sent from the mortgage company to a credit reference agency (CRA) who updates your credit rating and your credit score can fall.
If you apply for any other loans, the lenders that run a credit check on your account will be able to see that you have missed your repayments and they will use this to assess the risk of providing you a loan. In fact, it may be harder to access other types of loans and credit if you have payments that are in arrears. For some loans, the interest rate you pay may be higher to accommodate the risk of default.
Even if you miss a few mortgage repayments, if you are eventually able to pay off your debts, the information will still be sent to the CRAs and this can rebuild your credit rating over time.
Mortgage companies may charge late fees for missed repayment regardless of whether it falls on your first or second mortgages. The fees involved include the monthly arrears fee which is a flat fee each month.
If you have missed numerous payments and the lender needs to take legal action, they may pass on to the solicitor fees to your account.
If the event that your property is repossessed, the mortgage company may charge you ‘repossession fees’ for any legal work involved in the resale of your estate.
To limit the potential late fees, you can pursue the options explained below.
What to do if you can’t repay
Speak to your mortgage provider As soon as you know that you won’t be able to make your monthly payments, it is essential to call your mortgage provide to discuss your options. Some mortgage companies are able to provide forbearance by lowering your monthly fee or removing any late charges.
In some cases, you can discuss a way to combine your two mortgages into one deal which might be easier to afford. Either way, it is important to speak to your mortgage company as soon as you realize that you are experiencing financial difficulty and the last thing you should do is avoid the problem.
Take a payment holiday Depending on the company that provides your mortgage, you may be able to take what is known as a ‘payment holiday’ whereby you are allowed to skip next month’s payment at no extra charge. This will not affect your credit score or increase the cost of your loan.
However, it does mean that the payment is just pushed forward until next month meaning that you will have more to pay next time payment is due. So it doesn’t solve the problem, but if you are expecting some more income over the next few weeks such as commission or a bonus from work, it can be a viable solution.
Check if you have PPI We’re all fed up of the phone calls about miss sold PPI – but it can come in handy. If you have not been able to pay your first or second mortgage as a result of losing your job or because you have fallen ill, you can claim the loss of income through PPI.
PPI stands for Payment Protection Insurance and you may have added it to your mortgage scheme when you applied. Be sure to check the small print on your mortgage document to see if it applies.
Government schemes There are government schemes available to help those who are unable to repay their mortgage. For more information and to see if you are eligible, visit the Money Advice Service.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. Some partners may charge you a fee for helping you find a Mortgage or Secured Loan or other services they provide. MAKE SURE you check with the company before agreeing to any service if they charge you a fee and what the terms are. Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk QuiddiCompare does not charge a fee and does not provide any financial advice relating to mortgages. However we may on occasion receive commissions from IFA’s and mortgage providers, brokers and intermediaries for introducing you to them. The content of this site is meant to be informational, and it should not be considered financial advice. – See more at: quiddicompare.co.uk/mortgages