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If you are unable to obtain 100% finance from your main financier, and you either do not have, or do not wish to pay, the 5% to 20% deposit required to secure a property, nor do you wish to secure the deposit funds via a joint venture agreement, then you can offer a second mortgage on the property to another party.

 

As with your first mortgage, your alternative lender will be registering an encumbrance and interest on the property title, thereby securing their lending against the property asset.

 

This can be a somewhat tenuous position for the second mortgage lender. If a repossession and foreclosure is effected by the holder of the first mortgage over the property, and if there are only sufficient funds released from the sale to cover the first mortgage, the second mortgage holder will miss out. As a result, you will generally pay between a 1% to 4% higher interest rate on second mortgage money to compensate them for the added risk.

 

 

Where can second mortgage funds be found?

  • Solicitors’ Offices:

Some solicitors’ offices lend second mortgage money on behalf of private investors. Simply open up your Yellow Pages and call around until you find some that do.

  • Finance Brokers:

Once again, some brokers may be able to refer you to solicitors who offer second mortgage money, or alternatively, may be able to refer you to other sources of second mortgage money.

  • The Vendor:

You may wish to negotiate a second mortgage with the vendor of the property you are purchasing. Obviously, you will need to make it worth their while, so be prepared to offer them up to an additional 4% over the standard variable rate at the time. You can always refinance the property and pay them out as soon as you have sufficient cash/equity to do so.

Advantages:

    • Avoids the need to inject your own deposit monies into the deal

    • Avoids the need to pay LMI on your first mortgage if you have an insufficient deposit to avoid it

Disadvantages:

    • May inhibit your ability to obtain first mortgage finance on the property if your financier is aware of your intention to use second mortgage money for the deposit

 

To explore further the possibilities of using second mortgage money, find and speak to a solicitor with experience in this area.