Does 2nd Charge affect Ist Charge Loan To Value (LTV)?

by Readers Question

9:49 AM, 20th October 2016
About 2 years ago

Does 2nd Charge affect Ist Charge Loan To Value (LTV)?

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Does 2nd Charge affect Ist Charge Loan To Value (LTV)?

I currently have 4 Mortgages with one of High Street Leading Bank on Buy To Let basis. The LTV has always been below 60% as such I always qualified for best possible deals on my properties with them due to low LTV.LTV

However, recently, instead of taking further advance, due to their stringent criteria, I opted for 2nd Charge Loan from one of specialist lender therefore my first charge mortgage remained intact and easily managed to take 2nd charges on each property to expand my property portfolio.

Now my question is, does my LTV with first lender is affected as a result of second charge or it does not have any impact at all as they still have first charge over the property? As I am concerned that, I may not qualify for good mortgage rates when time comes to switch the deal if the LTV has been impacted.

I have asked this question from few brokers and they seemed to be unsure. Any input would be greatly appreciated.

Thanks

Simon



Comments

Neil Patterson

9:56 AM, 20th October 2016
About 2 years ago

Hi Simon,

The reason why no one is absolutely sure is that it is always down to the individual lender's credit underwriting decision, criteria and risk analysis.

In theory the second charge does not affect the original lender's LTV as the amount you borrowed from them is protected by the first charge and they would always get their money back first. Hence I see no reason why they would not be willing to offer you a new rate if the borrowing with them is the same, because their first charge and security is not affected as the account has not been changed.

However if you were to ask for additional funds then the security for these would rank below the second charge lender in terms of date order so there is where you may have a bigger issue.

Ian Narbeth

15:26 PM, 20th October 2016
About 2 years ago

Hi Simon, Neil is correct. You should also be aware you will not be able to switch lenders unless you pay off the second charge or the second lender agrees to postpone his priority.

H B

7:09 AM, 21st October 2016
About 2 years ago

Agree with the above. It will not affect the first lender's claim to the property or the value of their security when the repossess. However it will be down to their T&Cs how they treat it and it may make remortgaging difficult.

Apart from the LTV angle, the original lender would now consider your 'probably of default' much higher because you need to support more debt repayment from the same property. This makes you a much higher risk than you were previously.

Colin McNulty

9:55 AM, 22nd October 2016
About 2 years ago

Am I correct in saying that the first charge lender would have had to have given his permission for the 2nd charge to be applied? And hence they must already know about the 2nd charge?

Ian Narbeth

10:08 AM, 24th October 2016
About 2 years ago

Reply to the comment left by "Colin McNulty" at "22/10/2016 - 09:55":

"Am I correct in saying that the first charge lender would have had to have given his permission for the 2nd charge to be applied? And hence they must already know about the 2nd charge?"

Not necessarily. Some lenders require a restriction on the Land Registry title. A Form P restriction will read something like:

"No disposition of the registered estate by the proprietor of the registered estate is to be registered without a written consent signed by the proprietor for the time being of the charge dated {date} in favour of {chargee} referred to in the charges register."

If there is no restriction on the title then a second mortgage can be given and can be registered without the knowledge of the first mortgagee. In practice a prudent second mortgagee will give notice to the first mortgagee to prevent further advances by the first mortgagee having priority over the second mortgage.


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