A Guide to Debt Consolidation with a Second Charge Mortgage

By Lucy Waters - Managing Director for Aria Finance

In the current economic climate, many individuals find themselves grappling with mounting debts, skyrocketing interest rates, and the constant challenge of managing multiple payments.

Here at Aria Finance, we've witnessed a growing number of second charge mortgages being used for debt consolidation purposes as borrowers search for a lifeline to regain control over their finances. 

Whilst it may not be the right solution for all situations, a second charge mortgage can be an ideal solution for many who are struggling with debt. Before we explore any further, let's just recap how a second charge mortgage works:

A Second Charge mortgage is a secured loan that allows the borrower to use equity in their existing property as security for the lender. The primary mortgage taken out by a borrower is known as a "First Charge", so these secondary mortgages are referred to as "Second Charges".

Let's look at some of the reasons to consider a second charge mortgage for debt consolidation:

Interest Rates

Personal loans and credit cards ar notorious for their sky-high interest rates, which can really bump up the monthly repayments that individuals are facing. BY opting for a second charge mortgage, borrowers can access lower interest rates, thanks to the security offered by their property. While the total cost for the loan may be higher over the term, the lower interest rates allow you to maximise your monthly household income. 

Repayment Periods 

Second charge mortgages offer flexible repayment terms ranging from 5 to 30 years, borrowers can opt for a longer term than would be available on an unsecured debt. As the mortgage can be repaid over a longer term, this means that, although the total over the term will be higher than unsecured loans, your monthly repayment is lower allowing you to maximise your monthly household income. 

Loan Amounts

Unlike the limitations of credit cards and personal loans, second charge mortgages enable borrowers to access larger amounts, often up to 90% of the equity in their home. This proves invaluable for consolidating multiple debts under a single, manageable payment. 

Credit Score

Consolidating debts with a second charge mortgage not only simplifies repayment but also offers the opportunity to improve one's credit score. Through timely repayments and responsible financial management, borrowers can gradually enhance their creditworthiness, opening doors to better financial prospects. 

While second charge mortgage can offer numerous benefits, it is important to be aware of the potential risks:

• As a second charge is secured against the property of the borrower, a default in payments could result in the loss of the property used as collateral.
• Extending the term, may mean a lower monthly payment but it could result in the borrower paying more in interest over the full term of the loan. 
• If the value of the property that the second charge is secured against decreases, then the borrower could end up in negative equity, owing more than the value of the property. 

It is important that as a broker, you are aware of both the opportunities and risks of using a second charge mortgage for debt consolidation in order to fully engage with your client to understand their debt profile and financial position.

How can Aria Finance help?

At Aria Finance, we understand the complexities of debt consolidation and are committed to providing tailored solutions to meet our clients' needs. Our service include:

• At second charge mortgage can be arranged quickly, in some instances in just two or three weeks.
• Competitive rates, starting from 6.59%.
• 6 x times income multiples.
• No upfront fees.
• Impaired credit considered.
• Up to 100% LTV for employed applicants and 85% for self-employed applicants.
• We do all the work for you, no hassle. 

For more information on second charge mortgages contact the Aria Finance team to discuss your client's requirements.