What is a mortgage?

A security interest in existing property

A mortgage is a security interest in existing property (land, a building, a house, etc.). It gives the creditor the right, in the event of the borrower’s default, to have the property seized and sold at auction, so that the creditor is repaid first from the proceeds of the sale.

First charge, second charge: a question of priority

A single property may be subject to several mortgages, taken out by different creditors. The ‘rank’ of each mortgage determines the order in which creditors will be repaid in the event of the property’s sale:
The first charge guarantees its holder priority repayment, ahead of all other mortgage creditors. In practical terms, this is the mortgage that is paid first by the solicitor once the proceeds of the sale are available.
A second-ranking mortgage is taken out on a property already subject to a first-ranking mortgage. The second-ranking creditor will only be repaid once the first-ranking creditor has been fully repaid, with the risk that, if the sale price is insufficient

Why ranking matters to the investor

Before investing in a transaction secured by a mortgage, it is important to check the ranking of that mortgage: a first-ranking mortgage offers significantly stronger protection than a second-ranking mortgage, particularly if the property is already encumbered by a senior bank loan

Updated on: 17/09/2026