Getting a Buy-to-Let Secured Loan

As a landlord, you may want to borrow extra money against one of your properties, perhaps to fund renovations or to raise a deposit for your next investment purchase.

In this article, we’ll look at how you go about getting a secured loan on a buy-to-let (BTL), eligibility criteria and how a specialist mortgage broker can help you secure the best deals.

Can you get a secured loan on a buy-to-let property?

Yes, as long as you have enough equity in the property and can meet the lender’s affordability and eligibility criteria.

How would this work?

With a secured loan rather than an unsecured loan, the amount you borrow is secured against an asset – in this case, your buy-to-let property – meaning your property is at risk should you find yourself unable to repay the loan.

A secured loan is very much like a mortgage and is sometimes called a second mortgage or a second charge mortgage. The ‘second charge’ part of the name means that in the event of repossession, your original mortgage provider would be the first creditor to be repaid, and the second charge mortgage provider would be paid second.

How much you can borrow will depend on several factors, including how much equity you have available in your property, your current rental income and projections, and your other financial commitments. Providing you have enough equity and can afford the repayments, you can get third or even fourth charge mortgages on a buy-to-let.

Eligibility criteria for second charge buy-to-let mortgages

To make sure that you’re eligible for a BTL second charge mortgage, your lender will consider several factors:

• How much equity you have in your property: Your lender will want to know that their money is safe should the worst happen, so they will impose a cap on what proportion of the value of the property you can borrow, known as the loan-to-value ratio or LTV, to allow for any fluctuations in price. Most BTL lenders will set a maximum LTV of around 75%, sometimes 80%, depending on your other circumstances. If you own a property worth £200,000 then, and have an existing mortgage of £100,000, you could be eligible to borrow an additional £50,000, using a secured loan, with a LTV of 75%.
• Rental income: Although your personal income may come into play, for BTL-secured loans, it’s more important to be able to show regular rental income that is more than enough to cover both your existing mortgage and the repayments on the second mortgage.
• Credit history: Having credit issues on your file such as defaults, IVAs or even things like the use of payday loans can impact your ability to get a BTL secured loan. If you think your credit history is going to be a problem, speak to a bad credit buy-to-let broker.
• Property type: While you shouldn’t find any difficulties with standard construction properties, some lenders may refuse BTL second mortgages for certain property types, including HMOs. Make sure your broker understands the specifics of your property, and they will be able to filter the lenders that match your needs.
• Age: Some lenders set a minimum age of 21 for BTL second mortgages.

How a buy-to-let broker can help you get the best deal

Getting a buy-to-let secured loan isn’t as simple as comparing a few rates and picking the best. There are all sorts of factors to consider, like whether or not there are more affordable solutions, how much equity you can afford to spare and how your rental projections and credit history will impact your eligibility.

Your safest option is to work with a mortgage broker specialising in BTL-secured loans. They will be able to assess your unique circumstances and help you determine the best route.

Make a quick online enquiry now and find out how our free, no-obligation matching service could help you find exactly the right broker.

What rates to expect

Rates on a second charge mortgage tend to be slightly higher than on a first mortgage as your new lender is only second priority should you default on your loan, and you’ll be seen as slightly higher risk. Typical rates tend to be between 1%-2% above the Bank of England base rate.

The exact rates you can expect will depend on several factors, including primarily how much you are looking to borrow relative to the equity you have in your home.

The lower the LTV, the better rates you’re normally able to obtain, as this will attract more lenders to your application. On the flip side, having a patchy credit history can also increase the rates you pay on a second-charge mortgage, as this will reduce the pool of lenders willing to consider you for further lending.

Alternatives to consider

Although a second charge mortgage can be a good way to raise that extra capital, some alternatives might suit you better, depending on your circumstances.

Remortgaging to release equity

Rather than take out a second loan secured against your property, one option is to remortgage, release additional equity, and have one larger mortgage. While there are benefits to BTL remortgaging, you may find that you can’t match your current rates on a new mortgage or that you’re liable for early repayment charges, making it more expensive overall.

Remortgaging is the most viable alternative if you’re out of any fixed rate period and can match or better your current deal. Otherwise, you may be better off keeping your original rate and taking a second charge mortgage separately. Your broker will be able to help you weigh up your options.

Unsecured loan

If you only need to borrow a small amount, an unsecured loan can be a better option. It is much quicker to organise and does not require extensive checks or a property valuation. You can find unsecured loans from any lender up to £25,000 or may be able to get up to £50,000 if it’s through your existing bank.

Rates on unsecured loans tend to be higher than a secured loan because you aren’t backing your borrowing with the security of an asset.

Bridging loan

A bridging loan could be an alternative to a second charge mortgage if you only need the capital for a short period, for example, as the deposit for a new property purchase while you’re waiting on the sale of an existing property.

Bridging finance is quicker to arrange than a mortgage and more flexible, but it can be expensive, so make sure you work through the costs with your broker.

Get matched with a buy-to-let mortgage broker

Deciding whether or not a BTL second-charge mortgage is the right option for you can feel confusing, with different options and rates to compare. Having the support of a broker who has specific experience in buy-to-let second-charge mortgages can help provide a clearer picture. They can act on your behalf to find and negotiate the best rates for your loan.

Give us a call on 0330 818 7026 or make an online enquiry, and we’ll quickly assess your needs and match you with a broker who has the knowledge and expertise to help you get the BTL secured loan you need.