Mortgages.scot

I have had this question in which has me slightly confused at the actions of a mortgage lender in relation to assessing affordability on borrowing additional funds against a property. The funds are being borrowed through a 2nd charge.

I am in the process of building an extension on my property, wife and me are at the planning stage. Having found a loan for these works at a better rate than my main mortgage lender I went with the other company and as expected they want a 2nd charge. They want to assess my affordability but my original lender also wants to do it or they won’t agree on the 2nd charge. The new lender says it’s up to them to prove affordability not them!? Who is right here?

To jump straight to the answer, your 2nd charge lender is correct.

2nd Charge

I am really not sure why your current mortgage lender wants you to prove affordability to them. In the past, that would be the case but regulation has since changed. And those changes are not that recent, they date back to 2016.

Essentially it is the responsibility of the lender requesting the 2nd charge to carry out the affordability assessment, not the original lender. Of course, the new lender has to take the existing mortgage into account for affordability and assess affordability in line with regulation. Just as your current lender would have when you took it out (if it was before March 2014 different rules applied).

Having said that, if your current lender believes you may be placing them at risk of loss they can refuse the 2nd charge. But if that is the case they must advise you of their concerns. Perhaps that is why they want you to provide more information.

Current lender concerns?

Even if the current lender has concerns they would always have the 1st charge. And it will be an all monies charge. That means if anything goes wrong their balance plus all costs must be paid first. The new lender will get anything that is left.

My own view? Unless your current lender explains why they need to assess affordability, they are being unreasonable. So I suggest asking them for an explanation in the first instance.

Affordability assessments are similar across all lenders, see here for more information. More on the rules can be found on the FCA website.