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Getting a second charge mortgage on buy to let property

Find out everything you need to know about second charge mortgages here.

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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: 25th June 2019 *

We get lots of landlords asking us whether a full re-mortgage on their buy to let might be the best option.  For many, the answer may be a secured loan on a buy to let property, or a ‘second charge’ mortgage, so called because the primary mortgage on a property is called the ‘first charge’.

Fortunately, the advisors we work with are experts when it comes to second charge mortgages, even if you’ve been previously declined by a lender or have had bad credit.

In this article we’ll cover:

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Quick explanation of  second charges?

Many people know this type of loan as a second mortgage, secured loan, homeowners loan etc. and it has some distinct advantages for those looking to release some equity from a ‘buy to let’ property that they may have.

A second charge mortgage is a loan secured against the equity in your property, essentially giving you two mortgages.

Who can apply for a second charge buy to let home loan?

Almost any property-owning individual can apply for a second charge buy to let mortgage, so long as they have the equity (and income) required. It’s even possible to have 3rd and 4th charge mortgages if your situation warrants it.

What can you use a second charge for on BTL?

Many people use a 2nd charge mortgage to get a ‘buy to let’ mortgage secured on existing property to start or extend a property portfolio.

You know how it is, opportunities arise from time to time, such as a bargain ‘buy to let’ property; but sometimes you simply don’t have the cash to take advantage of them.

Or you might need cash for another reason, such as home improvements or even a wedding or a holiday.

BTL secured loan mortgage rates

The rates on buy to let 2nd charge mortgages are comparatively low, as are the buy to let charges, so they can make for a pretty cost-effective financial alternative to other types of unsecured loans.

Why choose a buy to let secured loan?

A btl secured loan has some distinct advantages for those looking to release some equity from a buy-to-let property that they may have. These include -

Maintaining a great existing mortgage rate

It may be that, for whatever reason, your credit rating is not as good as it was, this may mean that by remortgaging you may find yourself paying more interest on your entire mortgage.

Avoiding early repayment charges

In some instances, those looking to replace their entire mortgage may incur a large early repayment charge, in which case approaching a ‘buy to let’ second charge lender could make more financial sense.

Buy to let 2nd charge mortgages may be easier to qualify for

Surprisingly, second charge loans on buy to let property can sometimes be easier to obtain for those with adverse credit ratings.

If you’ve been declined a main mortgage due to poor credit, income or affordability issues, a second charge mortgage might be the answer.

Have you considered a personal loan?

Personal loans may be a good alternative for some borrowers who are looking for smaller loan amounts over a shorter period and, depending on their credit rating, rates can be quite attractive.

The amount that lenders are prepared to lend on a secured loan on a buy to let property, is quite often much more than an unsecured loan, (which is capped at £25,000) and more accessible than a first charge mortgage (which can have tighter affordability restrictions), so using a personal loan may not suit everyone’s requirements.

How to get a second charge mortgage on a BTL

You apply to the second charge lender (either direct or through a broker) as you would with any mortgage, who will then need to value the property as suitable security and assess your application in terms of affordability, credit history etc.

How much can I borrow on a second charge mortgage?

A second charge mortgage is assessed in a very similar manner to a normal first charge mortgage, the things that lenders will assess include your income, expenditure, available equity and credit history.

You’ll still need to prove your income and ability to make the monthly repayments, but the amount a lender will lend will be secured against the equity in your home.

The equity in your home is the percentage of the property owned outright by you. For example, if you bought a house for £200,000 and you have £150,000 left to pay on the mortgage, then you have £50,000 equity.

Equity can also increase as the property’s value increases.

Most lenders will let you borrow as little as £10,000. The higher the equity in your property, the more your lender will be inclined to lend.

What is the maximum loan to value for BTL second mortgages?

Most lenders cap lending to lower loan to values (LTVs) of around 75% for capital raising on buy to let property, whereas some can consider up to 80% and a handful even up to 85% in the right circumstances (where on a main residence this might be up to 90-95%).

There are also some non-equity lenders offering higher rate deals to homeowners and landlords over and above 100% LTV, which if affordable, may be an option if you really need the cash.

Some are also some lenders who may consider a further advance on Buy to Let mortgages as long as it does not exceed a certain loan-to-value rate.

If you are interested in looking at higher LTV borrowing on buy to let property, perhaps over and above 100%, then make an enquiry and we’ll refer you to one of the experts for the right advice.

Maximum affordability for second charge BTL mortgages

The traditional thought process for buy to let mortgages was that they are totally self-funding.

This will be based on the rental income of the property, which is then used to calculate the max loan by each lender in their own way. Some are more generous than others.

However, the reality is that rental payments can vary depending on location and may suddenly stop for any number of reasons, including failure to find or replace tenants, damage that might make to property uninhabitable or market fluctuations in rent.

The maximum you can borrow for a buy to let mortgage is still directly linked to the amount of rental income you anticipate receiving or that you feel is appropriate for the property you wish to buy.

Some lenders do permit you to use your earned income in the affordability calculations if there’s a shortfall.

However, lenders must carry out stringent affordability assessments, specific to buy to let mortgages, in order to safeguard both themselves and the applicant.

Using a new lender for the additional borrowing

Remember, you don’t have to take a second charge mortgage on buy to let from your original mortgage provider, in fact, by having access to the whole market, one of the expert advisors we work with could well be able to get you a better deal with a different lender, whilst still leaving your current mortgage intact.

Speak to a BTL second charge mortgage expert

Before you consider taking out a second charge mortgage on your ‘buy to let’, it’s essential that you get the best possible advice, so call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry here.

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: 25th June 2019
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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 info 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.

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