It can be difficult to get a second mortgage if you have bad credit. However, it's not impossible. There are many lenders who are willing to work with borrowers who have poor credit scores. In this guide, we will discuss the process of getting a second mortgage with bad credit and how to improve your chances of being approved. This will help you understand how to get a refinance second mortgage with bad credit at a competitive rate.

Here's our guide on mortgages for contractors with bad credit, where we cover how to find the right lenders, how to increase your chances of being approved and what steps you can take to help you secure the best deal.

What Is a Second Mortgage?

A second mortgage, also called a "second charge mortgage", is a loan that is secured on your home. It sits behind your first charge/existing mortgage. It comes with higher rates than a first charge and can be used for any purpose, such as paying off high interest debt, home improvements, or funding a major purchase. Most of the time, mortgage lenders will only lend borrowers up to 80% or 85% of their home’s equity through a second mortgage, depending on how much equity you’ve already built up. This means that, unless you paid you’ve been paying back your current mortgage for a few years, you won’t likely qualify for a second mortgage.

What Is the Difference Between a Remortgage and a Second Mortgage?

A remortgage is when you replace your existing mortgage with a new one. You can use a remortgage to access the equity in your home, consolidate debt or simply obtain a lower interest rate on your mortgage. Many people remortgage to switch to a new lender, in order to get better rates or terms. Remortgaging is particularly useful if you originally took out a mortgage with a low credit score and have rebuilt your score since then as it can be a way to secure a more favourable deal.

On the other hand, a second mortgage is an additional loan taken out separately from your existing mortgage/first charge. This is done to access some of the equity you’ve built up in your home. The second charge is completely separate from the first charge and, in most cases, the interest rate on a second mortgage will be higher than that on your original loan.

A second charge could be a more suitable option for you than a remortgage if you want to release additional equity from your home without losing your existing mortgage rate or paying ERCs (early repayment charges).

What Are the Most Common Uses for Second Charge Mortgages?

Second mortgages are typically used to cover large, one time expenses or consolidate high interest debt.

Some common uses include the following:

  • Home improvements - many people use second mortgages to fund home renovations or repairs that can increase the value of their property
  • Debt consolidation - a second mortgage can also be used to consolidate multiple debts into a single loan with a lower interest rate. This can help you save money on interest payments and pay off your debt faster
  • Education costs - if you’re going back to school or helping your child finance their education, a second mortgage can be used to cover tuition, fees, and other expenses
  • Helping your children on the property ladder - if you want to help your children buy their own homes but don’t have enough money for down payments, a second mortgage can be used to cover costs
  • Buying a holiday home - second mortgages can also be used to purchase a second property for personal use. This can be a great way to get away during the holidays without spending a fortune each time, or simply to have a convenient place to stay while travelling
  • Raising money to fund a business - a second mortgage can be used to raise money for a business venture without having to take on a lot of debt or give equity to investors
  • Other major purchases - some people use second mortgages to pay for large purchases, such as a car, vacation, or wedding

No matter what you use the money for, be sure to carefully consider your options and understand the risks of taking out a second mortgage before making any decisions. Paying off debt and making wise investments can be great ways to manage your finances and ensure your long term financial health, but if not done properly, a second mortgage could put you at risk of defaulting on your loan payments. It’s important to weigh the pros and cons of taking out a second mortgage before making any decisions.

How Much Can I Borrow on a Second Mortgage?

The amount you can borrow with a second mortgage depends on the value of your home, how much equity you’ve built up and your income (amongst other factors). Generally speaking, most second charge lenders will allow borrowers to take out loans of up to 80% of their home’s value. However, this number can vary depending on the lender and your individual financial situation.

As a rule of thumb, it’s important to remember that taking out too much money could put you at risk of defaulting on your loan payments. Make sure to borrow responsibly and research all of your options before committing to a loan. Overall, a second mortgage can be a great financial tool if used wisely and responsibly.

Bear in mind that not all first charge mortgage lenders will permit a second charge on your property because of the additional risk they will incur.

How Do I Qualify for a Second Mortgage?

There are a few requirements you must meet in order to get a second mortgage, such as:

  • Possessing at least 15% equity of your home's value
  • Being up to date on your primary mortgage payments
  • Having evidence of your income and expenditure
  • Getting consent from the first charge lender that you can have a second charge put on the property
  • Having a first charge mortgage in place for minimum of 6 months

A strong credit score is important if you want to be eligible for a second mortgage, but even if your credit isn't perfect, there are adverse lenders that may be able to consider you. It can be more difficult to find a lender who will approve your application, but it's not impossible.

How to Get a Second Mortgage with Bad Credit

Although your credit score is vital, it's not the only component that lenders survey to decide if you're eligible for a second mortgage.

Lenders also consider:

  • Your debt-to-income ratio
  • Your monthly income
  • Why you’re raising equity and the impact this could have on your circumstances
  • How much equity you’ve already built up in your home
  • And more

However, even if you satisfy the lender’s criteria regarding the above and receive permission for a second mortgage, your lender will likely demand a higher interest rate than most competitive second charge lenders because of your bad credit.

Either way, if you've been rejected for a second mortgage due to poor credit, there are still other options available. Speak to a broker about what could be suitable for you.

How Do I Know If I Have a Poor Credit Score?

Your credit score is a numerical representation of your overall credit history. It's based on the information in your credit report and helps lenders decide if you're an eligible borrower. There are a few major credit bureaus, Experian, Equifax, and TransUnion. They use different credit scoring models, but all scores will range from very poor to excellent and each has a numerical value to accompany each rating.

If you've had adverse credit in the past, such as defaults, overdrafts, or CCJs, your credit score will likely be at the lower end of the spectrum. If you’re wondering what your credit score looks like, the good news is that you can check this online for free. Each of the 3 major credit bureaus offers free online platforms to check your score, as do certain financial institutions and some mobile apps. Once you’ve determined your credit score, you'll have a better idea of where you stand in terms of qualification for a second mortgage.

How to Improve Your Chances of Securing a Second Charge Mortgage with Bad Credit

If you're looking to get a second mortgage with bad credit, here are some steps that can help.

  • Pay off existing debt: paying off debts like credit cards or car loans can improve your debt-to-income ratio and can boost your chances of approval, as you’ll appear more creditworthy to lenders
  • Work on improving your credit score: this step will likely take the longest, but it's worth it in the long run. Make sure to pay all of your bills on time and avoid maxing out your credit. Also, check your credit report for errors and dispute any mistakes that you find. And if you aren't on the electoral roll, make sure you add yourself to it as soon as possible
  • Don’t limit yourself to high-street banks: mainstream lenders are much less flexible when it comes to bad credit second mortgages, as they have very strict criteria. You may have better luck with applying with a bad credit mortgage lender through a broker like John Charcol

By taking these steps and being diligent with your finances, you may be able to increase your chances of getting a second mortgage at a competitive rate.

How Do I Find Second Mortgage Lenders for Bad Credit?

Many second mortgage bad credit lenders only through intermediaries like John Charcol. This means that using a broker will give you access to more lenders and better rates, giving you the best chance of securing a competitive deal.

These lenders are able to have more flexible criteria when it comes to bad credit as they look at your overall circumstances and assess every application on a case-by-case basis. It’s important to note that while bad credit mortgage specialists provide a great alternative for those who have been denied by traditional second charge lenders, they often also charge higher interest rates or fees.

To find a specialist bad credit lender that is willing to work with you and offers the best terms, your best bet is to consult an independent, specialist mortgage broker. At John Charcol, we can help you find the right lender and make sure that the loan is structured in a way that fits within your budget and goals. We have access to the whole market and know how to ensure that you get the best deal, even if your credit score isn't perfect.

Things to Consider Before Taking Out a Second Mortgage

Before you take out a second mortgage, make sure to consider the following:

  • The size of the loan - you should only take out a second mortgage for an amount that you can comfortably pay back and one which does not leave you stretched financially
  • Interest rate - make sure that you're getting the best deal possible when it comes to interest rates on your second mortgage by shopping around or consulting a mortgage broker. The interest rates will typically be higher than your primary mortgage, and even higher if you have bad credit, so you should factor this into your long term goals
  • Repayment options - ensure that you understand how much and when you need to repay your second mortgage in order to avoid any extra charges or fees
  • Potential alternatives - you could consider other borrowing methods such as remortgaging or a further advance. If you're unsure which option is best for you, it's a good idea to speak to an experienced mortgage adviser

At John Charcol, we can help you weigh up your options and make the best decision for your financial situation. No matter what stage of the process you're at, our advisers are here to help. Get in touch with us today on 0330 433 2927 to learn more about your second mortgage bad credit history options and how we can help you get the right loan for your needs.

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