What is a first charge mortgage?
A first charge mortgage is the first mortgage which has been charged on a property and has first priority before any other mortgage or lending on the property. When a first charge mortgage is placed on a property it will usually have a time scale for repayment and the terms of the charge.
A first charge mortgage can be either for a residential property or a commercial property.
Before any other mortgage can be placed on that property you will need to have the permission of the first charge mortgage lender.
First charge mortgages can be used in tandem with second charge mortgages which are mortgages placed on a property when there is an initial first charge mortgage and directly after the first charge mortgage.
The second charge mortgage could be used for things such as debt consolidation or simply further borrowing using the equity in your home.
A first charge and second charge mortgage can also be obtained at the same time if, for example, you want a residential mortgage but also need a bridging loan, home improvement loan or development mortgage on your property.
What is a first charge on a property?
A first charge on the property gives the creditor the first rights on the property. This means if you were to default on the mortgage the first charge mortgage lender will have first rights on the property. This means they will be able to sell the property by way of a home repossession to recover their mortgage plus any associated costs before they will then pass the leftover on to the second charge lender.
Mortgage lenders tend to be very careful with having a second charge lender and most will refuse to have a second charge lender as it further complicates the issue if a home repossession is needed to reclaim lost funds.
For this reason, mortgage lenders are very careful when family members offer a gifted deposit and will usually insist on a gifted deposit letter to ensure the family member gifting the money don’t have any claim on the property.
To get a first charge mortgage on a property you will usually have to use a mortgage broker or go directly to the first charge mortgage lender but this will limit the number of products you may be eligible for.
Most first charge mortgages will be on a 80% Loan to value and as such as 20% mortgage deposit.
There are now a lot of mortgage lenders who offer a 95% Loan to value mortgages with a 5% mortgage deposit.
There are even mortgage lenders who offer the family springboard mortgage such as the barclays family springboard mortgage, the Lloyds lend a hand mortgage and the post office family link mortgage
If you have bad credit or are self-employed then specialist mortgage brokers such as bad credit mortgage brokers or self-employed mortgage brokers may be useful.
You may also want to consider the government schemes which are available for first-time buyers and home movers such as:
- Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy- allows you to buy your home at a discount price.
- Preserved right to buy- same as above.
- Right to acquire- same as above.
What is a first charge loan?
A first charge loan just like a first charge mortgage will have a preference and first rights over whatever asset which the loan is secured on before any other lenders.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.