Second Charge Mortgage Calculator UK
Use our second charge mortgage calculator to work out what you can afford on a second charge mortgage. Simply enter your property’s value and the amount currently outstanding on your first charge mortgage.
This second charge loan calculator will work out how much you could borrow on a second charge mortgage by calculating the total amount of equity available in your property, at a total LTV of 85% (85% is a common maximum LTV used by many second charge mortgage lenders). It will then subtract your outstanding first charge from the total amount of equity available. This figure will then give you the amount you could potentially borrow on a second charge mortgage on your property.
Want to Know More?
Fill out this form and we'll get in touch with you to book a free session with one of our mortgage advisers.
How Is Second Charge Mortgage Affordability Calculated?
Calculating the affordability of a second charge mortgage involves assessing the borrower's financial situation to ensure they can handle the additional loan repayments alongside their existing obligations.
Below is a breakdown of the documents and different factors lenders will consider when calculating second charge mortgage affordability.
1. Assessing Income
Lenders will want to know what sources of income you have and will require evidence of them.
Suitable Sources of Income
- Salary or wages
- Self-employment income
- Rental income
- Pensions
- Benefits
- Other regular income
Evidence of Income:
- Payslips
- Bank statements
- Tax returns (for self-employed)
- Rental agreements
2. Existing Financial Commitments
The lender will want to know what existing financial commitments and outgoings you have as part of the affordability assessment.
Current Mortgage
- Monthly repayments on the first charge mortgage
- Remaining term and interest rate
Other Loans and Debts
- Credit card payments
- Personal loans
- Car loans
- Any other secured or unsecured loans
3. Estimating Living Expenses
The lender will look at your living expenses and regular outgoings when considering your disposable income and how much you can afford in mortgage repayments.
Monthly Living Costs
- Utilities (electricity, gas, water)
- Council Tax
- Food and groceries
- Transport and fuel
- Insurance (home, car, health)
- Childcare and education
- Entertainment and leisure
4. Stress Testing
Lenders stress test the mortgage as part of the affordability assessment to see if you could continue to comfortably meet your mortgage payments if rates were to increase.
- Lenders often use a higher hypothetical interest rate to ensure affordability under potential future rate rises
- This helps ensure you wouldn't be left vulnerable if rates were to increase
5. DTI (Debt-to-Income Ratio)
Lenders work out your DTI to assess whether you can take on more debt (e.g. a second charge).
Calculating DTI
- Total monthly debt repayments (including the proposed second charge mortgage) divided by gross monthly income
- A lower DTI indicates a better capacity to handle additional debt
- DTI Ratio = Total Monthly Debt Payments/Gross Monthly Income
6. LTV (Loan-to-Value)
- Lenders offering second charge mortgages usually have a limit on how much they will lend, often capping it at 85% of the property’s value. This is known as the LTV (loan-to-value) ratio
- LTV Ratio = (Outstanding First Mortgage + Second Charge Amount)/Property Value
- The lender's LTV will determine the maximum amount you can borrow, depending on the amount outstanding on your first charge and the value of your property
7. Affordability Calculation Example
Here's an example of how a lender will assess your income and outgoings to determine second charge mortgage affordability.
Income and Outgoings
- Gross monthly income: £4,000
- First mortgage: £800
- Car loan: £200
- Credit card payments: £100
- Estimated monthly living expenses: £1,500
- Second charge monthly repayment: £300
Total Monthly Debt Payment
- £800 (first mortgage) + £200 (car loan) + £100 (credit card) + £300 (second charge) = £1,400
Disposable Income
- £4,000 (gross monthly income) - £1,500 (estimated monthly living expenses) = £2,500
- £2,500 = disposable income before debts and major outgoings
Overall Second Charge Affordability
- £2,500 (disposable income) - £1,400 (total monthly debt payment) = £1,100
- Second charge is comfortably affordable as £1,100 left over
Second Charge Calculator for Mortgage Repayments
Once you know how much you can potentially borrow on a second charge - by using our second charge mortgage affordability calculator above - you can estimate your monthly second charge mortgage payments by using our second charge mortgage repayment calculator.
Simply enter the amount you want to borrow, a typical second charge mortgage rate of 6% - 8%, how long you want to borrow the money for and the mortgage type, then press Calculate.
How Are Second Charge Mortgage Repayments Calculated?
The repayments for a second charge mortgage are calculated similarly to those for a first mortgage, but there are specific factors and details involved.
Here’s how the calculations are generally made:
Key Factors in Repayment Calculation
Loan amount: the total amount borrowed on the second charge mortgage
Interest rate: the interest rate applied to the second mortgage, which can be fixed or variable
Loan term: the length of time over which the loan will be repaid, usually expressed in years
Repayment type: whether the loan is on an interest-only basis or a capital repayment basis
Important Considerations
- Fees and charges: there may be additional fees associated with taking out a second charge mortgage
- Creditworthiness: the interest rate offered may depend on the borrower’s credit score and overall financial situation
- Lender policies: different lenders may have varying policies and methods for calculating repayments
Second Charge Mortgage Calculation Summary
By assessing income, existing commitments, living expenses, and stress-testing for potential interest rate rises, lenders determine if the borrower can afford the second charge mortgage. The affordability calculations ensures that taking on the additional debt will not overly strain the borrower’s finances and helps prevent future financial difficulties. Always consult with a financial advisor such as John Charcol for personalised advice. Contact us on 0330 433 2927 to learn more.