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By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 29th September 2020*

We get many enquiries from people asking about getting a second mortgage so they can purchase an investment property, many who may have been declined or have bad credit.

The good news is that the brokers we work with are experts on  2nd mortgages for investment properties, and can help you find the best deal, even if you have a bad credit history. Give us a call on 0808 189 2301 or make an enquiry, and we’ll find a specialist advisor who will be happy to give you the right advice.

In this article, we’ll be covering the nuts and bolts of how to get a second mortgage for an investment property.

We will be covering:

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What is an investment property?

An ‘investment property’ is simply a property that has been bought with the aim of making money for the owner rather than being his or her secondary residence or home.

This is usually achieved through rental income or eventual sale of the property (or both), or less commonly, through commercial activity.

You’ll encounter various bits of terminology relating to categories of ‘investment property’ throughout the article, but we’ll mostly use the term to include UK Buy to Let (BTL) properties, overseas BTLs, holiday lets and commercial or business properties.

All of the above can be viewed together as a separate category from second homes, which are classed as residences, whether they are the owner’s first, second or subsequent property – and which require different types of mortgage; we will cover the crucial differences in more detail later in the article.

It’s also worth being aware that “second mortgage” can refer to:

  • A second mortgage secured on a single property with the aim of raising capital
  • The second of two mortgages secured on two individual properties

To avoid conflating the two types, we will refer in this article to a second mortgage secured on a single property as a ‘second charge mortgage’ or a ‘secured loan’.

Mortgage options when purchasing a BTL or other investment property

If you’re not yet decided on the best way to finance your purchase, the good news is there are several different options when buying a second or subsequent property for investment purposes.

These break down as follows:

  • Taking out a second charge mortgage (secured loan) on an existing property to raise the funds for the deposit on your investment property. You’ll then need an additional mortgage for the investment property.
  • Taking out a second mortgage on an existing property or releasing equity to pay for your investment property outright – this may be possible if you have a lot of equity in your first property.
  • Securing a new mortgage on the investment property using some means other than the equity in your existing property (savings, lump sum etc).

In all these scenarios, the ‘existing’ property could be your home or a BTL or business property – and if you want to expand your portfolio further, the same process can be repeated as many times as there is sufficient equity available. There will be several factors to consider, but your aim will be to get the best rates across the total amount of borrowing.

To help establish the best way to balance your borrowing across multiple properties, feel free to get in touch and we’ll match you up with one of the specialist advisors we work with.

Can I get a second mortgage on an investment property?

As above, it is absolutely possible to obtain multiple mortgages if you meet the lender’s affordability and other criteria, provided you can demonstrate ability to finance each purchase.

So, if you already have two properties – say, a primary residence and a Buy to Let property too – it should be possible to purchase a third property using funds raised from the second property, whether it’s a second home or a BTL.

Am I eligible for a second investment property mortgage?

Whether this is your first investment purchase or a subsequent one, the answer is usually yes, as long as you can satisfy the lender that you have access to sufficient funds to make the purchase and maintain regular payments.

When you apply for a second mortgage to buy rental property or a second home,  Most lenders will calculate affordability by factoring in your income, outgoings and also the equity in your existing property, as well as projected rental income if you’re taking out a Buy to Let mortgage on the second property. For more information on this see our affordability section.

With at least one property under your belt, chances are you will already be familiar with the type of issues that can affect eligibility, but to recap, these include but are not limited to:

  • Low overall credit score
  • Bad credit (see next section)
  • Property with unique or non-standard features (e.g. timber frame, thatched roof, prefab, listed buildings, and more)
  • Self Employed, Employed in probationary period or contractor as main borrower
  • Older borrowers (where the borrower will reach 75-80 years of age before the end of the term)
  • High Loan to Value (LTV) in your existing property, i.e low equity

Can I get a second investment mortgage with bad credit?

Bad credit’ refers to a range of issues, which include:

  • Late payments
  • Mortgage arrears
  • Defaults
  • Debt Management Plans
  • County Court Judgements (CCJs)
  • Individual Voluntary Arrangements (IVAs)
  • Bankruptcy
  • Repossession

All of the above plus any of the ‘non standard’ circumstances in the previous section contribute to your overall risk profile as a borrower, and the more issues on your credit history, the harder it can be to find a willing lender. If several of these factors apply, you may already have found that fewer lenders will consider your application.

Fortunately, there are some that can still accept borrowers even with multiple issues, so the best way to find a good deal is to speak to an expert with access to the entire market. Get in touch with us and we’ll find an advisor with experience in this area who’ll be happy to help you find the best products for your circumstances.

For more information on this see our bad credit mortgage information section.

Second home vs investment property: the key differences

As we have seen, a second home is purchased as a secondary residence for the sole use of the owner(s) and their family, while an investment property such as a Buy to Let is bought with the intention of making a return on the investment.

Mortgage lenders view the two types of property as different propositions with different levels of risk attached to them, and as such, there are different rates and products available for each type.

Second home mortgage vs investment property mortgage: Cost

If you’re not looking to rent out your second property right away, you might want to consider a second home mortgage rather than a BTL mortgage.

This is because the upfront costs of a Buy To Let mortgage are usually higher, which may make this option harder to access, especially if you don’t have a large amount of equity in your current property.

As we will see in this section, this option does not necessarily rule out the possibility of rental income either initially or at some point in the future. Second home mortgage rental rules are at the discretion of the lender, so you should be able to come to an agreement with your provider if you want to set up ‘consent to let’ further down the line.

Here are a few of the main factors to take into account when comparing a second home mortgage vs buy to let:

Mortgage rates for second home vs. investment property

Mortgage rates for investment properties tend to be higher than the equivalent rates for second homes, so you can expect to pay more interest for a mortgage on a Buy To Let.

A buy to let mortgage on a second property will also typically attract a larger deposit (most lenders want at least 25% of the property’s value) than you might expect to put down for a second home mortgage.

However, if you like the idea of an interest only mortgage, which means lower monthly payments, this will be easier to obtain with a Buy to Let mortgage on a second home, as most lenders can treat the new property as an investment vehicle (the mechanism by which you will ultimately pay off the remaining capital). In fact, most BTL mortgages are offered on an interest only basis.

Second home vs investment mortgage: Deposit size

The deposit you’ll need to put down is another factor that might help you decide whether to go for a second home mortgage or Buy to Let.

For a second home mortgage, most lenders offer up to 75% LTV, some will consider 80-85% and a few can go up to 95%.

For a Buy to Let mortgage, most lenders offer up to 60% LTV, some can go to 75%, and few can go higher.

This means you’ll need to raise at least a 25% deposit and possibly up to 40% for a BTL property compared with as little as 5% for a mortgage on a second residential home.

Second home mortgage with ‘Let to Buy’

Some lenders offer a ‘let to buy’ option, which would allow you to rent out your current home when you purchase move into a second home.

This might be a good option if you are considering selling your current home but want to wait for a more favourable or convenient time to do so, or if you don’t want the costs associated with a Buy to Let mortgage. Find out more about this option in our Let to Buy section.

How to get a second mortgage for a rental property

If you have an existing BTL property and want to take out a second mortgage on it, this is possible provided you meet the criteria. As with any other property you own, you can take a secured loan or second charge mortgage on a rental property to raise capital for a further property purchase, or to finance any other project.

In terms of the deposit you’ll need to arrange this, Loan to Value on a 2nd mortgage on a rental property will typically be set at up to 85-75%, so you will first need to stump up at least 15% of the property’s value.

Second mortgage for a business property

The process, rates and deposit levels will again be slightly different for a business or commercial property. You should expect to put down a significant deposit on a second mortgage for a commercial property purchase; most lenders set these around 40%, and only a few will consider 20-25%.

Rates will also be higher than those levied on residential property, and can vary considerably depending on the nature of your business and the lender’s analysis of your commercial prospects.

Releasing equity to buy second property outright

If you have enough equity in another property you own, it may be possible to raise all of the capital to buy an investment property or second home in cash rather than simply using the equity to raise a deposit.

This option results in fewer mortgages secured against your property, which reduces the admin involved in applying for multiple mortgages as well as the long term cost and risk to you. And if you’re looking to rent out your property, with a Buy to Let owned outright, you will also of course be able to do so without the expense of a BTL mortgage and its associated higher interest rates.

Speak to an expert on second mortgages for investment property

Whether you’re considering a second home mortgage or investment property mortgage, to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 29th September 2020
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of 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 who 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.

Find out more about second home mortgages

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