If a high street remortgage has turned you down because you are self employed or have had credit problems, it is easy to assume the door is closed. Often it is not. A secured loan, or second charge mortgage, can still be an option where a mainstream remortgage is not. Here is why, and what lenders actually look at.
Why a secured loan can say yes when a remortgage says no
Second charge lenders tend to be more flexible than high street mortgage lenders. Because the loan is secured against your home and you usually have equity in it, the lender has more protection, which makes them more willing to consider income that is harder to evidence or a credit history that is not spotless. It is not a free pass, but the criteria are often wider.
What lenders look at
- Equity. The more equity you hold in your home, the better your chances and the better the rate. It is the lender's main cushion.
- Affordability. They will still check that you can afford the payments alongside your existing mortgage and other commitments.
- How recent any credit problems are. An old, settled issue matters far less than a recent one.
- The reason for borrowing. A clear, sensible purpose helps.
Self employed: how your income is assessed
Mainstream lenders often want two or more years of accounts, which can rule out newer businesses, contractors and people with variable income. Second charge lenders are frequently more flexible, and may consider a shorter trading history or accept a wider range of evidence such as accounts, tax calculations and bank statements. If you have struggled to remortgage purely because of how your income looks on paper, this is often where a secured loan helps.
Bad credit: what counts and why timing matters
Missed payments, defaults and county court judgments all show on your file, but they are not all weighed the same. A default from years ago that has since been settled carries far less weight than a missed payment last month. Specialist lenders price for this, so expect a higher rate the more recent or serious the issue, and a better rate as your record improves and time passes.
The trade off: flexibility costs more
The flexibility comes at a price. Rates on secured loans for self employed or adverse credit applicants are higher than mainstream mortgage rates, and the loan is secured on your home. That makes it all the more important that the payments are comfortably affordable, because the consequences of falling behind are serious.
How to give yourself the best chance
- Keep your recent payments clean. The last twelve months matter most.
- Know your equity. The more you have, the more options open up.
- Get your paperwork in order: accounts, tax calculations and bank statements if you are self employed.
- Use a broker who knows the second charge market, so you are matched to a lender likely to say yes rather than collecting declines.
If a remortgage has said no, it is worth finding out what is realistic before applying anywhere. Debbie at DS Financial can tell you honestly whether a secured loan fits your situation. For background, see what a second charge mortgage is and second charge vs remortgage.
General information, not financial advice. A second charge mortgage or secured loan is secured against your home, which may be repossessed if you do not keep up the repayments.
Sources: MoneyHelper, Second charge mortgages, FCA, Mortgages.