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        Second Charge Mortgages on Buy-to-Let Properties

        Need a second charge mortgage on a buy to let property? It can be done!

        Find out the lenders, rates & exactly what you need to do next in our expert guide.

        Are you looking for a Second Charge mortgage against a Buy-To-Let property?

        No impact on your credit score

        Author: Pete Mugleston - Mortgage Expert, MD

        Updated: May 03, 2022

        If you’re a landlord, you may need to gain quick access to equity within your buy-to-let property. Some methods of releasing these funds – like remortgaging – can take time, and incur early repayment charges.

        Another option that is often easier is a second charge mortgage. In this article, we’ll deal with some of the most popular questions and concerns we get from landlords on this topic, including:

        Can you get a second charge on a buy to let property?

        The short answer is yes – there are plenty of lenders who offer second charge mortgages to landlords. It depends on your specific circumstances: your overall rental yields, your other income, the type of property you own, your credit history and the loan to value ratio on the property or properties

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        How does it work?

        A second charge mortgage is also known as a second charge loan, or just a second mortgage (although it’s not to be confused with a mortgage for a second home). It’s essentially a loan secured on the equity or capital in your buy-to-let property – i.e. the value of the property, minus the amount outstanding on your existing investment mortgage.

        To qualify, you’ll have to demonstrate how much equity you have built up with the help of your rental income, and that you can afford to meet the repayments on both mortgages.

        You don’t need to take out a second charge mortgage with your existing lender – in fact, it’s best to go through a broker who can look across the whole market to find you the most competitive deal. But you’ll usually need permission from your existing buy-to-let mortgage provider to take out a second charge mortgage.

        What types of mortgages are available?

        The type of second charge mortgage a broker recommends will depend on your circumstances:

        Fixed-rate

        Like any fixed-rate mortgage, this type of second charge mortgage means a lender will offer you fixed interest rates for a promotional period, usually between five and seven years. After this period, unless you refinance, it will change to a variable interest rate.

        A fixed rate loan is more usually offered to borrowers who are looking to take out a second charge mortgage over a longer period, such as 25 years. So it could be a good option if you’re looking for more affordable monthly repayments.

        Interest-only vs capital repayment

        With an interest-only second charge mortgage, you only repay the initial interest – not the capital – for a fixed period, such as five years. After this, you will have to pay back the entire loan balance, plus interest, by a certain date.

        An interest-only loan could be a good option for you, as a landlord, if you’re planning to, for example:

        • refinance to a plan with more favourable terms,
        • sell the property,
        • or pay off the capital you borrowed with the money you’ve made from your investment properties.

        With a capital repayment second charge mortgage, your regular repayments pay off both the interest and some of the capital you owe. This means the amount you owe decreases over time, and at the end of the term, the second charge mortgage is fully paid off.

        See our guide to interest only vs. capital repayment mortgages for more information about how they differ.

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        How a broker can help

        Not all lenders offer second charge mortgages for BTL properties. And those that do often have stringent eligibility and affordability criteria (see below).

        To avoid the risk of being turned down – which can damage your credit history as well as wasting your time! – it’s best to work with a broker who is an expert in securing second charge mortgages on BTL properties.

        They’ll be able to recommend the best type of product for your circumstances, find you the best lender for your needs, and search the market for the best rates for you.

        Eligibility criteria and affordability

        There’s no deposit required for a second charge mortgage, provided you have enough equity in your property. But apart from that, most of the usual eligibility factors for any mortgage will apply.

        Lenders will look at your credit history, your property, your income, and in some cases other factors such as how long you’ve lived in the UK.

        To assess whether you can afford the second charge mortgage, lenders will factor in additional criteria, including:

        How much equity you have

        Most second charge lenders will want you to have 20% to 30% equity in the property after adding up your mortgage balance and the balance of their loan.

        Your repayments on your existing mortgage

        The rental income from the property, and your income from employment or other sources. Some lenders will set a minimum ‘rental yield’, specifying that – for example – the amount of rent you receive must be equal to 125% of your payments on both mortgages.

        But every lender will want to look at your finances as a whole, to make sure you can keep up repayments on both the second charge mortgage and your existing financial commitments.

        The term length of the second charge mortgage

        Again, this comes down to affordability – the longer the mortgage term, the lower your monthly repayments.

        The size of your property portfolio

        Some lenders will set a cap on the number of properties, for example 20.

        Property types

        The type of BTL property you have may affect your ability to get a second charge mortgage. Some lenders will turn down applications relating to the type of property below.

        Lenders who accept this type of property may do so under certain conditions, for example a maximum loan-to-value figure, or a minimum property value.

        • Expat properties
        • Ex-council properties
        • Flats above commercial properties
        • HMO properties
        • Semi-commercial properties
        • Non-standard construction homes
        • Regulated buy-to-let properties
        • Uninhabited properties.

        Lenders may also have restrictions regarding the number and size of bedrooms in the property, and whether the tenants have joint or several liability.

        Which lenders offer second charge loans on buy-to-let properties, and what rate could I get?

        There are a number of second charge buy-to-let lenders out there. They all have their own criteria; some may prefer to avoid certain types of BTL property (see below); and they will each set their own rates for second charge products.

        For example, Shawbrook Bank currently offers this type of loan at 9.0% APRC representative, while others have higher rates – like Oplo at 13% – and some have lower, like Tesco Bank at 5.9%. (These rates are correct at the time of writing – March 2022 – and are for illustration purposes only.)

        The exact rate you’ll be able to get will depend on a number of factors, including your affordability, the property type, how much you want to borrow over what period, and your credit history. For example, if you have bad credit, lenders are likely to offer a less favourable rate.

        A specialist broker will help you find out which rates you qualify for and advise you on how to get the best deal from the right lender.

        Get matched with a second charge mortgage broker

        A second charge mortgage can be an efficient way of releasing funds from your BTL property. But the conditions required by lenders can vary hugely.

        Using an experienced, established broker who has experience both in second charge mortgages and in your particular type of BTL property will save you time, hassle and potential damage to your credit history.

        We only work with expert brokers who can provide you with the highest quality advice.

        Call Online Money Advisor on 0808 189 0463 or make an enquiry here, and we’ll quickly match you with a broker tailored to your circumstances for a free, no-obligation chat.

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        FAQs

        Yes, and the process you would go through wouldn’t be any different to applying for a second charge mortgage on a property that has an unregulated buy-to-let mortgage on it.

        The only thing to be aware of it that you should definitely seek professional advice if you are applying for the two loans together, as not all lenders offer regulated buy-to-let mortgages.

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        Pete Mugleston

        Mortgage Expert, MD

        About the author

        Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

        Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

        FCA Disclaimer

        *Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

        Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.