What is a second charge mortgage?

A second charge mortgage, also known as a ’secured loan’ or 'second mortgage' allows you to
borrow money, whilst leaving your existing mortgage in place. A second charge mortgage
requires you to provide your home as security. This means we take a legal charge over your
property, in the same way a mortgage provider does. This will be removed once the loan is fully
repaid.

When you take a second charge mortgage, you still own your property. We are a responsible
lender and want to make sure you can afford the repayments on your second charge mortgage,
but this security means, as a last resort, should you be unable to repay the loan we would
repossess your property to recover our loss.

Tacking

Tacking is a legal concept arising under the common law relating to competing priorities
between two or more security interests arising over the same asset. The concept is best illustrated
by way of example.

Bank A lends a first advance to the borrower, which is secured by a mortgage over the
borrower's property. The mortgage is expressed to secure this advance and any future advances.

Bank B subsequently lends more money to the borrower and takes a second ranking mortgage
over the same property.

Bank A then subsequently lends a second advance to the borrower, relying on its original
mortgage.

Bank A will always have a first priority claim against the property for the full amount of its first
advance. But it will be able to claim against the property in priority to Bank B with respect to its
second advance only if it is permitted to tack the second advance to the mortgage that was taken
at the time the first advance was made. If Bank A is not permitted to tack the second advance,
then Bank B's claim in respect of the sums that it lent will have priority over Bank A's claims
with respect to the second advance

The rule against tacking in Hopkinson v Rolt (1861) 9 HL Case 514; 1861 WL 7196 (Hopkinson
v Rolt) provides that a first lender is not able to tack further advances if it had actual notice of the
existence of a subsequent financier’s security.
When combined with the rule in Devaynes v Noble, Clayton’s Case (1816) 1 Mar 572 it has the
added effect that following notice of the existence of a subsequent lender’s security, any
payments made in reduction of the financial accommodation provided by the first lender will
result in a reduction of that first lender’s priority amount in an amount equal to the amounts of
those reductions. For example, if the second lender or a third party pays down the obligations
owed to the first lender, then the priority amount of that first lender will reduce by that same
amount.

Consolidation

To consolidate (consolidation) is to combine assets, liabilities, and other financial items of two or
more entities into one. In the context of financial accounting, the term consolidate often refers to
the consolidation of financial statements wherein all subsidiaries report under the umbrella of a
parent company. Consolidation also refers to the union of smaller companies into larger
companies through mergers and acquisitions