Second Charge Loan Purposes
28October 2020

Most second charges are for consolidation or home improvements.  However, a secured loan can be used for any legal purpose. Here are a few loan purposes Equifinance has seen this year outside of the norm…

  1. Raising a deposit for a Buy to Let

Equifinance has seen more and more of these recently. Equifinance may be able to raise funds on a client’s owner-occupied property for a BTL deposit/purchase. However, please do bear in mind the mortgage and expenditure of the BTL property will have to be factored into the affordability calculations.

  1. Paying an outstanding tax bill

Sometimes a tax bill can come unexpectedly, and clients need to find funds quickly to settle it. Whilst Equifinance can raise funds for settling the bill they may ask further questions such as a) why was the client not in a position to settle the funds without borrowing? b) how can the client ensure they can meet their next tax obligations without the need to capital raise against their property?

  1. Converting outbuildings on the client’s land

Assuming the buildings/land is on the client’s owner-occupied property and there are no livestock on the land/buildings, this can be an effective way of raising money for conversion. Equifinance has seen more and more clients looking to convert outbuildings into home offices during the COVID period.

  1. Annulling bankruptcy / IVA

This is a more complex loan purpose and does involve investigation into the reason for the IVA/Bankruptcy and involvement from the IPs and client’s solicitors. Equifinance recommends referring these cases in the first instance so we can fully understand the clients’ situation.

  1. Private school tuition

Equifinance has seen a few of these loan purposes. Equifinance may look for signs of financial distress if the clients are unable to pay the fees in their normal way. However, this can be an effective way of raising the funds required.

  1. Cosmetic surgery

Equifinance recently raised funds for a client looking to undertake a medical procedure abroad. The client was keen to raise the funds for the procedure whilst also taking the opportunity to consolidate some existing unsecured debt at the same time.

  1. Paying off friends’/family loans

Often, we think of consolidation as repaying creditors who are lenders. But sometimes the creditors can be family or friends looking for repayment of funds they have lent by way of an informal personal loan. As a second charge can be lent for any legal purpose this can be a viable option.

  1. Business purposes

Equifinance requires any loan for business purposes to be referred to the underwriters in the first instance. Equifinance would need to understand what the funds will be used for and if we think it may impact the client’s future income. For example, if the funds are to prop up the firm, this would not be approved. Alternatively, if it is to pay for an asset for an existing and successful company this could be an ideal way of raising the funds.

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