Second Charge vs Remortgage vs Further Advance: Which Raises Capital Best?

Choosing Wrong Can Cost £6,500 a Year on the Same £100,000

Landlords and business owners who need to pull capital out of a property usually have three ways to do it. They can remortgage the whole loan, go back to their current lender for a further advance, or leave the existing mortgage alone and put a second charge behind it. All three release the same money. What separates them is what each one does to the borrowing you already have — and, as the worked example below shows, the gap between the cheapest and the costliest route on the same amount raised can run to thousands of pounds a year.

That matters more now than it has for years. Anyone who fixed before 2022 is probably sitting on a rate that no lender will offer them again, and the wrong route can throw that rate away for no reason. We see the cost of that mistake in real cases: thousands of pounds a year of avoidable interest, paid because nobody ran the comparison properly.

This article deals with commercial and investment capital raising only — equity out of a buy to let, a portfolio property or business premises to fund a purchase, refurbishment works, a tax bill or an expansion. A homeowner raising money against their own house faces a different, regulated decision, and that sits outside what is covered here.

Three routes to raising capital against a property: remortgage, further advance or second charge.

The Three Routes at a Glance

Start with the remortgage, since it is the route most people reach for first. You repay the old loan in full, usually by moving to a new lender, and everything gets repriced at today’s rates. If the old deal carried an early repayment charge, you pay it on the way out.

A further advance keeps you with your current lender. The original loan carries on exactly as it was, and the lender adds a new slice of borrowing next to it at whatever they charge today. Simple enough — provided your lender actually wants to do it. More on that shortly.

Then there is the second charge: a separate loan from a separate lender, secured on the same property, ranking behind the mortgage already on it. Your first mortgage does not change at all. Same rate, same payments, same fixed period running to the same date. The new lender takes its security from the equity above the first loan, and the two lenders agree their order of repayment in a document called a deed of priority.

The Numbers: When the Second Charge Wins

Here is the situation the second charge was built for. A landlord holds a buy to let worth £600,000 with a £250,000 interest-only mortgage fixed at 2.1% until 2028, and needs £100,000 for a deposit on the next purchase.

Remortgage the lot — £350,000 at 5.9% — and the monthly cost is £1,720.83. The 2.1% rate is gone forever, and a 3% early repayment charge would take another £7,500 before the new loan has funded anything.

Now price the second charge instead. £100,000 at 8.9% is £741.67 a month, sitting on top of a first mortgage payment that stays at £437.50. Total: £1,179.17. Look at what happened there. The second charge rate was nearly three points above the remortgage rate, and the landlord still ends up £541.67 a month better off — £6,500 a year — with no early repayment charge and the 2.1% protected until 2028. Expensive money on £100,000 beat cheaper money on £350,000.

What about the further advance? At 6.4% it would come to £970.83 all-in, the cheapest of the three. But that price only exists if the current lender will actually write it: on an investment property, for this purpose, at that rate. Plenty of buy to let and commercial lenders will not. Some cap additional borrowing at low loan to value, some exclude onward purchases, some decline business-purpose raising outright. So the further advance takes the paper comparison and then, more often than either alternative, turns out not to be on the table at all.

For reference, the combined debt in this example is 58.3% loan to value — well inside the comfort zone for second charge lenders on investment property.

The Numbers: When the Remortgage Wins

The second charge does not win every case, and the losing cases follow a recognisable shape.

Different landlord this time. Property worth £500,000, only £120,000 left on the mortgage, and the fixed rate ended last year — the loan now sits at 4.9%, close to what the market charges anyway. They want £180,000, considerably more than they currently owe.

A full remortgage of £300,000 at 5.9% costs £1,475.00 a month, at an easy 60% loan to value.

Try the second charge route on the same case and it falls apart. The £120,000 stays at 4.9% for £490.00 a month, the £180,000 second charge at 8.9% adds £1,335.00, and the total lands at £1,825.00 — £350.00 a month more than the remortgage, £4,200 a year.

Why the reversal? A second charge justifies its higher rate by protecting a valuable old deal, and there is no valuable deal here — 4.9% is nothing special. At the same time, the expensive new money now makes up three fifths of the total debt instead of a small slice of it. Large raise against an ordinary existing rate points to the remortgage. Modest raise against a genuinely cheap fix points to the second charge. Real cases usually land somewhere in the middle, and guessing is how the expensive mistakes happen — run the arithmetic on live figures every time, starting with our second charge mortgage calculator.

When a Further Advance Wins

Where the current lender is willing and the pricing is fair, the further advance takes some beating. One lender, one property, underwriting built on a relationship the lender already knows, sometimes no fresh valuation, and none of the legal work that comes with bringing in a second lender. Cheap to set up and quick to draw.

The problems all sit on the availability side. You are negotiating with an audience of one, and that lender knows it. The advance gets assessed on today’s criteria, not the criteria in force when the original loan was written — and criteria have tightened a great deal since 2022. Above all, purpose is the sticking point: lenders that happily advance funds for improving the mortgaged property itself will often refuse the same money for buying the next one, or for anything that looks like business cash. Ask the question, by all means. Just do not build the plan around a yes.

Running the numbers is the only reliable way to compare a second charge against a remortgage.

What Each Route Costs Beyond the Rate

Monthly payments do not tell the whole story, because the set-up costs land differently on each route.

The remortgage has the longest bill: valuation, legals (or a fee-assisted package), an arrangement fee — often a percentage of the loan on investment products — and, where one applies, the early repayment charge on the deal being broken. That last item deserves respect. At 3% to 5% of a substantial balance, an early repayment charge can outweigh every other cost in the deal put together, and it is the single most common reason a remortgage that looks fine on rate turns out to be the wrong move. Current pricing across the market is on our commercial mortgage rates page.

Further advances carry the lightest set-up costs of the three. A modest product fee, possibly a valuation, almost nothing in legals because the lender already holds its charge.

Second charge costs land in the middle: lender arrangement fee, valuation, broker fee, plus the legal work on the deed of priority — and, quite often, the first lender’s own legal costs for reviewing it, which the borrower picks up. Real money, all of it. What keeps these costs manageable is that they are flat fees, not percentages of a six-figure balance, so they seldom swing the overall comparison the way an early repayment charge can.

The Deed of Priority, Briefly

No second charge completes without the first lender’s consent. The deed of priority is the document that records it, fixing which lender gets repaid first if the property is ever sold or repossessed. Most mainstream lenders treat consent as routine paperwork. Not all do. Some restrict the combined loan to value they are prepared to sit in front of; a handful refuse second charges behind particular products altogether.

Consent timing is the thing to watch. It can take days or it can take weeks, and in our experience it decides the completion date more often than anything else in the process. The practical fix is sequencing — get the consent request in at the start of the application rather than the end. A broker placing second charges every week knows which first lenders turn consent around fast, which ones need chasing, and plans the case around that from day one. The same consent mechanics apply on short-term facilities too, covered in our page on second charge bridging loans.

A deed of priority sets out which lender is repaid first when a second charge sits behind an existing mortgage.

Eligibility and What Lenders Look At

Whichever route you take, the lender is weighing the same four things: equity, income or rental cover, credit record, and what the money is for. Where the routes part company is in how much of your borrowing gets examined, and how closely.

A remortgage puts everything on the table. The new lender underwrites the entire balance from scratch, old debt and new money alike.

With a further advance, track record does most of the talking. A clean payment history on the existing loan counts for more here than on any other route, because the lender is essentially deciding whether to extend a relationship it already has.

A second charge lender underwrites the new borrowing alone — but do not mistake that for a light touch. Combined loan to value across both charges gets scrutinised, affordability is tested on the total monthly commitment rather than the second charge in isolation, and on investment property the rental cover calculation runs against the combined debt. Where second charge lenders do give ground is on purpose and income type: this market grew up taking cases the mainstream declined, and that shows in the criteria. Irregular income, unusual purposes and complicated structures get a fairer hearing here than most first charge lenders will give them.

Choosing Between the Three

Three questions, in order.

Is the existing rate materially below today’s market? A no ends the exercise: remortgage, because you have nothing worth protecting and one loan beats two on cost and simplicity.

Will the existing lender advance the money, for this purpose, at a rate worth taking? If yes, the further advance keeps things cheap and simple.

And if the old rate is worth keeping but the lender will not play — the position most landlords and business owners who fixed before 2022 find themselves in — the second charge usually wins, higher headline rate and all, because that rate touches only the new money.

Then check the proportions. Once the raise approaches the size of the existing loan, run the full arithmetic both ways, because a large second charge can lose to a clean remortgage even against a respectable old rate. That calculation, across live pricing from the whole market, is exactly what a broker should be doing before recommending anything.

Frequently Asked Questions

Final Thoughts

The route that raises capital cheapest is rarely the one with the lowest headline rate, and the difference between running the numbers and guessing them is measured in thousands of pounds a year.

Commercial Finance Network is an independent, whole-of-market commercial finance broker. We will tell you which route actually raises your capital cheapest, whether your existing lender is likely to help, and what the real combined figures look like before anything is submitted. We are directly authorised and regulated by the Financial Conduct Authority.

Second charge lending taken for business purposes or secured against investment property is not regulated by the Financial Conduct Authority. Your property may be repossessed if you do not keep up repayments on a loan secured against it.

Call us on +44 1494 622 111 or email info@cfnuk.com to speak to a specialist directly.

Related Pages

• Second Charge Lending in Complex Structures – How second charges work within trusts, LLPs and SPVs.
• Consolidate Business Debt Into a Commercial Mortgage – How consolidation works, when it makes sense and what it costs.
• Second Charge Bridging Loans – Short-term second charge finance for time-sensitive capital needs.
• Bridging Loan Rates – Current rate ranges by loan to value band and borrower profile.
• Commercial Mortgages – Longer-term property finance for trading premises and investment property.