Second Charge Mortgages for Buy-to-Let Properties

A second charge mortgage on a buy-to-let (BTL) property can be quick and easy to arrange, allowing landlords to access funds for emergency renovations, grow their portfolio or any other purpose.

In this article we’ll discuss how BTL second charges work, how to apply for one and why seeking the advice of an expert broker can save you thousands of pounds compared with going it alone.

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

Yes. The good news is that many lenders offer second charge BTL mortgages. These are often far easier and cheaper to arrange than a remortgage, which takes time and comes with many of the usual mortgage costs.

A buy-to-let second charge will not incur any conveyancing or early repayment fees. By keeping the loan separate from your main mortgage, you can take it out over shorter terms and save on interest costs.

What are the eligibility criteria?

Rental yields are one of the most important factors when assessing eligibility. Many lenders who offer BTL second mortgages will insist that rental income covers at least 125% of the total monthly cost of your first and second charges.

Another key factor will be the property type, as not all lenders will approve loans for all types of property.

Those for which your choice of lenders may be limited include:

• Non-standard constructions
• Flats above commercial property
• Semi-commercial properties
• Former council properties
• Houses of multiple occupancy (HMOs)
• Regulated buy-to-let properties

Loan-to-value (LTV) is a significant factor in a lender’s decision. A higher LTV increases the provider’s risk, which can result in higher rates and reduced affordability. Some lenders will insist you retain a minimum of 20% equity after taking out the second charge (up to 30% with some).

Some providers will restrict the number and size of bedrooms in the property and whether it is joint or several liability for HMOs. HMO second charges are a niche area within this loan type, and you should always seek expert advice before taking out a loan.

Other standard mortgage eligibility factors for BTL second charges include:

• Borrower(s) income (some providers will require each lender to have a minimum income of at least £25,000 pa)
• Credit files (while your credit files are looked at, in many cases, it’s easier to get a second charge with bad credit than to take out a personal loan, as lenders have the security of your property)
• Portfolio size (some lenders set a maximum portfolio size of 20 properties)
• Affordability
• Age

How to get a second charge buy-to-let mortgage

Follow these steps to maximise your chances of approval:

Typical interest rates

Due to the perceived risk involved with second-charge mortgages, interest rates can be higher than for first-charge lending—usually between 2% and 3% above the Bank of England base rate. 

Rates vary according to how closely you fit a lender’s risk profile. This means that while one lender may offer you a high rate (or even be rejected), you may be able to borrow at a competitive rate with another.

Many borrowers opt for interest-only rather than capital repayment to help keep monthly payments manageable, but your current situation and future plans will determine which is right for you.

For example, you may prefer an interest-only deal if you are planning to:

• Sell the property
• Refinance and consolidate some of your borrowing in the near future
• Sell other properties in your portfolio to pay off the amount borrowed

Which lenders offer these loans?

Many lenders approve BTL second charge mortgages, but without in-depth knowledge of the industry, it’s difficult to know which is best for your situation.

For example, high street names such as Barclays and Santander offer this type of loan – as does Virgin Money. However, you may find a much better rate using a specialist lender with no street presence but is focused on niche mortgage products.

Many lenders operate solely through referrals and do not accept direct applications.

Get matched with an advisor who specialises in second charge mortgages for buy-to-let

Niche borrowing requires expert knowledge to secure the best deal. We work with brokers across the UK who specialise in different aspects of mortgage lending, including those with knowledge and experience of the buy-to-let second charge market.

What’s more, our unique broker matching service will assess your circumstances and pair you with the broker most suited to your needs. The initial assessment only takes a few minutes and could be the difference between acceptance and rejection.

To get matched with your ideal BTL second charge mortgage broker, call 0330 818 7026 or enquire online to arrange a free no-obligation chat.