Second Mortgages

The pattern in all of these is that the first mortgage is worth keeping. If it is not worth keeping, the better answer is usually to refinance the whole position into a single facility, which is cheaper, simpler and does not need anyone’s consent.

• The combined position. The first balance plus the proposed second, against a conservative valuation. Second mortgagees keep a real buffer, because enforcement costs and first-mortgage interest sit ahead of them.
• Whether the first mortgage is amortising or interest only, and whether it has redraw or a line of credit that could grow.
• The conduct of the first mortgage. Arrears on the first are close to fatal for a second application.
• The exit. Most second mortgages are short to medium term with a defined way out, whether a refinance, a sale or a business event.
• The purpose of the funds, which determines both the documentation and whether the loan is regulated credit.
• The property itself. Location, type and saleability matter more here than on a first mortgage, because the second lender is the one who suffers if the property is hard to sell.

1. 01

   Title search and payout figure

   We establish who is on title, who holds the first mortgage, what is owing and whether there are other registered interests or caveats.

2. 02

   Check the first mortgagee’s consent policy

   Before any cost is incurred. If the incumbent does not consent to second mortgages, we redirect to a refinance or a caveat facility rather than waste your money on a valuation.

3. 03

   Indicative terms

   Amount, term, total cost in dollars, and the conditions. Second mortgage pricing sits between a first mortgage and a caveat facility, closer to the latter.

4. 04

   Valuation and consent in parallel

   Requesting consent takes time at the first mortgagee’s pace, not ours, and it is the usual cause of delay. We start it immediately.

5. 05

   Deed of priority negotiated and executed

   This is where the priority amount is fixed. It involves both lenders’ solicitors and it is worth having your own solicitor read it.

6. 06

   Settlement and diarised exit

   Funds advance and the mortgage registers. The exit date goes in the calendar on day one, and the refinance work starts well before it.

In our experience most people who ask for a second mortgage are better served by one of the other two, and a meaningful minority are better served by exactly what they asked for. Working out which group you are in takes one conversation and a title search.

• There are now two lenders with security over the property, and two sets of obligations to meet.
• A default on the first mortgage can trigger consequences under the second, and often the reverse as well. Cross-default provisions are common and should be read.
• Second mortgage pricing is materially higher than first mortgage pricing, because the position is materially weaker.
• Terms are shorter. This is not permanent funding, and treating it as permanent is how it becomes expensive.
• If property values fall, the second mortgagee’s equity buffer disappears first, and refinancing out becomes harder at precisely the wrong moment.
• Legal costs on both sides, plus the deed of priority, add real cost to a modest advance. On smaller amounts those fixed costs matter proportionally more.