Second Charge Mortgage Affordability Calculator

Everything you need to know about Second Charge Mortgages and how to secure the best possible rate

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Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Updated: March 18, 2024

Before a lender can offer you a second charge mortgage, they are required by law to ensure you can afford the repayments. But there is no single way for them to do this and each lender determines their own way of assessing applications.

In this article we’ll look at the factors that impact second charge affordability, other aspects of your application to consider and why speaking to an expert broker before applying can help you get approved and save thousands.

How is second charge affordability calculated?

Lenders will consider your debt to income (DTI) ratio when assessing your application. Essentially this is what you might call your ‘disposable income’ after receiving your salary and paying any contractual debt payments. Bearing in mind this is for a second charge mortgage, your DTI will include repayments for your primary mortgage.

There is no set maximum for how much debt you should have but, as a guide, most lenders will expect your debts to account for no more than 30%-40% of your total income (including your first charge mortgage repayments). The lower your DTI, the wider pool of lenders open to you and the better chance you have of securing a lower rate.

But providers will look at your overall income and expenses too. So, if you’re planning to apply for a second charge mortgage, it makes sense to not only ensure all your debts and utility bills are up to date, but that you cut back on luxuries and cancel any unused or unnecessary subscriptions.

You can use our calculator below to see how this looks for you and your own specific situation:

Debt to Income Ratio Calculator

This calculator allows you to calculate your debt-to-income ratio and will indicate whether mortgage lenders will classify it as low, medium, or high risk.

The amount you get paid each month, after any taxes or contributions have been deducted
Be sure to include all of your fixed outgoings, as well as any loans or credit card payments you make

Your Results:

Your Debt to Income Ratio is %

Good news! Most mortgage lenders will class your debt-to-income ratio as low. You’re unlikely to be declined for a mortgage based on your outgoings, but speaking to a mortgage broker before applying is still recommended as they can improve your chances of getting the best deal.

Most mortgage lenders will class your debt-to-income ratio as moderate, which means some of them might view your application with caution. Some lenders are much more strict than others when it comes to affordability and debt, so it’s important for you to find a lender who’s more lenient. You should speak to a mortgage broker before you apply to ensure you’re matched with a lender whose criteria you fit.

Most mortgage lenders will class your debt-to-income ratio as high. But that’s where we can help! With so much of your monthly income going towards debt repayments, you could struggle to get approved for a mortgage without the help of a mortgage broker. We can help you find a lender who’s more lenient on debt and affordability, and could still secure a mortgage approval.

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Work out your maximum borrowing capacity

Regardless of how much you can afford to pay each month, your borrowing capacity is limited by the amount of equity you hold in the property. That is, the amount you own outright.

For example, if you’re home is worth £400,000 and your outstanding mortgage balance is £200,000, your equity is £200,000. This would mean that your ‘loan to value’ (LTV) on your first mortgage is 50%.

Most second charge mortgage lenders place a cap on the total LTV of all your secured borrowing after taking out your additional loan. Typically, this is around 80%-85%.

So, in the example above (assuming a maximum LTV of 85%), provided you meet the affordability and eligibility criteria, you could borrow an additional £140,000 to take the total debt secured against your home to £340,000.

Some lenders set their cap lower at around 70%-75%, while there may be some rare cases where they could consider approving second charges that take overall borrowing to 100% LTV. The higher your LTV, the higher the interest rate is likely to be which can indirectly impact affordability in the sense that it makes the repayments higher.

Our calculator below can give you an idea of how this could work out for you with your additional borrowing requirement:

LTV Calculator

This calculator will tell you what your loan-to-value (LTV) ratio is, based on the property's value, your deposit/equity and the amount you're borrowing.

Enter an amount in pound sterling
Property value minus your deposit/equity
Loan amount must be less than property value

Your Results:

Your LTV is

This means that most mortgage providers will consider your deposit amount to be more than satisfactory, but speaking to a broker is still recommended to ensure you get the best deal.

This means you’re likely to meet the deposit requirements at most lenders, but since many reserve their best rates for those with higher deposits, speaking to a broker is recommended.

Many mainstream mortgage providers would consider this high and be reluctant to lend. Applying through a mortgage broker may be necessary to find a specialist low deposit mortgage lender.

LTVs have a direct impact on the rates available to you - speak to a mortgage broker and find out how to get the best deal based on your ratio.

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How a broker can help secure your second charge mortgage

Each lender sets their own eligibility and affordability factors and interest rates. This means that, unless you know how all UK mortgage providers assess applications for a second charge home loan, it’s impossible to know who to approach or whether any deal you’re offered is the best for you.

Whole of market brokers, like those we work with, have insider knowledge and a network of industry contacts to speak to or negotiate with. So, whatever your circumstances, they can find you the right deal at the best rate to give you total peace of mind.

If you get in touch we can arrange for a specialist in this area of lending to contact you straight away.

We're so confident in our service, we guarantee it.

We know it's important for you to have complete confidence in our service, and trust that you're getting the best chance of mortgage approval at the best available rate. We guarantee to get your mortgage approved where others can't - or we'll give you £100*

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Other factors that affect affordability

Other factors that can indirectly affect affordability include:

  • Bad credit – Makes you a greater risk and will incur a higher interest rate which could make repayments too expensive.
  • Property type – Likewise, non-standard constructions tend to incur higher rates.
  • Age – Lots of lenders have an age cap on lending. Older borrowers may have to take a loan over a short term which will result in higher payments.

Other costs and fees to factor in

Taking out a second charge can save you the costs of remortgaging, but it may incur costs of its own.

These might include:

  • Arrangement fees
  • Legal fees
  • Broker fees

Any fees should be clearly explained to you before you agree to anything. If you use a broker, they will factor in all associated fees when calculating the most cost-effective borrowing option for you.

Do interest rates impact affordability?

No they don’t. But, naturally, they will be a factor in determining how much you pay each month.

When a lender calculates ‘affordability’ they are simply assessing the maximum amount you can afford to borrow for a second charge mortgage, based on comparing your income and expenditure – which would also need to clearly cover both first and second charge repayments. This calculation has no bearing on the interest rate you are offered and vice versa.

A separate assessment is carried out to determine how closely your application matches the risk profile of the lender. Lenders with the most stringent eligibility criteria tend to offer the most competitive rates.

If your application includes risk factors such as bad credit, high loan to value or a high DTI, your choice of lenders will most likely be reduced and the rate you pay will be higher. It is, therefore, possible to meet a lenders’ eligibility criteria but be rejected on affordability.

This is why speaking to an expert is crucial to maximise your chances of approval.

Get matched with a second charge mortgage specialist

Second charge mortgages are often the easiest and quickest route to additional funds for homeowners. But opt for the wrong deal and you could end up regretting your decision and paying more than necessary.

Our broker matching service will quickly assess your situation and then pair you up with a broker who is experienced in helping people just like you secure the best deal on a second charge. So, you get the best deal without the hassle of ringing around and potentially applying (and being rejected) multiple times.

To get matched with your ideal second charge mortgage broker, call today on 0808 189 2301 or enquire online to arrange a free no obligation chat.

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We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in all different mortgage subjects.

Ask us a question and we'll get the best expert to help.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

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