Pete Mugleston | Mortgage AdvisorPete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.
Updated: 8th October 2019 *
We receive many enquiries from landlords looking to see if they can take out a second charge mortgage on their buy-to-let properties. One of the greatest advantages of a second charge mortgage is how quickly obtaining revenue can be. For buy-to-let landlords, this can make all the difference, especially if they need funds to take action quickly on increasing their portfolio of buy to let properties or for essential renovation works.
In this article, we explore the options available for landlords looking to get this type of finance and will cover the following:
I have a buy to let property. Can I get a second charge mortgage?
Yes! There are plenty of second charge mortgage lenders who would be more than willing to lend to those with buy-to-let properties, though your overall rental yields and the loan to value ratio on the property or properties will affect the outcome.
Your choice of approachable lenders will be slimmer if your property is a regulated buy to let, which are most commonly rented out to a landlord’s immediate family.
Some lenders will be wary of regulated buy-to-let properties and may not consider you for a loan, though there are plenty who might. They may also be cautious if you or your family have previously lived in the property; in these circumstances, you may need to provide evidence of residency.
Can I afford to take out a second charge loan on a buy-to-let property?
In order to assess your affordability for a BTL second charge loan, a lender will factor in a number of circumstances, including:
Your personal circumstances (including credit report, personal income, age, etc)
How much equity you hold in your BTL property
Your first charge mortgage payments (if any)
The type of property (see the 'What lenders are there for second charge buy-to-let mortgages?' section below for more info)
How much rental income you’ll make from the BTL
The term length of the second charge mortgage will also affect affordability—the longer the loan, the less you will pay monthly, but the more you will end up paying back to a lender overall.
As a rough estimate based on the time of writing, if you take out a second charge loan for £100,000 with an interest rate of 5% for 5 years, you will pay back £1,887.12 a month, or £113,227.20 in total. However, if you took out £100,000 with an interest rate of 5% over 25 years, you will pay back on £584.59 a month, but £175,377.01 in total.
With this in mind, it may be better to pay the second charge loan amount off quicker if you can afford it. Also note that rates fluctuate depending on the current market, so it's always best to speak to an expert who will have up to date access to these rates.
Fixed rate vs interest only 2nd charge buy to let mortgages
Depending on your circumstances, a broker may recommend a fixed rate or interest-only loan.
A fixed rate for a second charge mortgage will offer you a promotional fixed rate period, typically between 5–7 years. After this period, it will change to a variable interest rate, unless you refinance. A fixed rate loan is typically offered to borrowers who opt to take out a 2nd charge loan for a longer period, say 25 years.
Interest-only second charge mortgages require the borrower to only pay the initial interest for a fixed period (for example 5 years), after which they will have to pay back the entire loan balance plus interest at some point. This will have to be paid back by a certain date.
An interest-only loan could be an option for a landlord if they plan to refinance to a plan with lower terms, wish to sell the property, or plan to pay off the standard principle with the money made on buy-to-let developments.
Is non-buy-to-let income used towards my affordability?
In many circumstances, second charge lenders require evidence of personal income for each named person on the buy-to-let property. Some lenders have minimum income requirements for any buy to let product - £25,000 per year is standard.
Can I get a 2nd charge buy-to-let loan with bad credit?
Yes, you may be able to get a large loan from a lender if you have a poor credit history, though bear in mind that you may have to pay more interest. A second charge mortgage is a popular option for individuals who may have been refused a first charge mortgage or other type of finance.
If you have a poor credit history plus a high loan to value (LTV) ratio on your buy-to-let property, you’ll likely be offered a loan with a higher interest rate. If, however, you hold more equity on your property, a lender may offer a more reasonable interest rate.
We’ve worked to help many people with poor credit to secure the right finance for them. To discuss your options and find out more, make an enquiry today. We’ll put you in touch with a lender who can source the best second charge deals for your buy-to-let property.
How can I improve my chances of getting a BTL second charge loan?
There are many things you can do to improve your chances of being approved for a 2nd charge loan, or to qualify for a higher loan to value (LTV) ratio.
You will need to provide evidence of rental income, so make sure you have access to your rental history. If you have a higher rental yield on your property, this could put you at an advantage.
A good credit rating will also put you in good stead, so if there are factors on your credit report that you may be able to resolve, then you may want to consider doing so before applying for a loan.
Work with a second charge loans expert
Securing a second charge mortgage for a BTL property by yourself is possible, though you could be missing out on a great deal, and if you approach multiple lenders in search of the most favourable rates, this could result in unwanted marks on your credit report.
By working with a broker, you can get access to whole-of-market offers that you would otherwise be unable to find, as many of these deals aren't visible to the public. You’ll also be paired with the best lender for your needs and circumstances, first time.
Get impartial advice from an expert who will be able to find tailor-made solutions for your circumstances. Make an enquiry here to get started.
Can my BTL property type affect my chances of getting a second charge loan?
The type of buy-to-let property you may affect the type of second charge loan you are able to get. Some buy-to-let properties may have different loan conditions compared with more traditional property types. These can include:
A second charge mortgage expert will be able to assess more unique properties and explore the market to find suitable lenders. Make an enquiry today and we'll put you in touch with someone shortly for a free, no-obligation chat.
2nd charge for HMO properties
You may be able to secure a second charge mortgage for a house of multiple occupation (HMO), though you need to bear in mind that lenders may offer you a higher loan to value compared with other buy-to-let borrowers.
For example, typical maximum LTVs for HMOs are up to 70-75% on HMO, though some lenders may offer a higher ratio. Factors like bad credit may also affect the LTV ratio.
Lenders may also have restrictions in place for the number of bedrooms in the property, the size of these bedrooms, and whether it is a joint or several liability.
You may be able to secure finance using the positive equity you have on multiple properties. Portfolio loans are a good way of financing to avoid multiple mortgages and renewals. However, second charge loans for a property portfolio are fewer in number, so the rates may not be as attractive as other buy-to-let options on the market.
How do I find the best second charge mortgage lenders?
There are a number of lenders who provide second charge mortgages for buy-to-let properties, though they each have their own criteria and specifications. High levels of competition between lenders have meant that, at the time of writing, more competitive rates are now available.
You might be tempted to look at online rates tables, though you may want to steer clear of these, too. This is because these offers are not bespoke to your buy-to-let property and are only provide a very rough idea of what a lender can offer you.
Finding the best deal on your own can take a bit of legwork, which is why working with a broker is the best option. The experts we work with have access to the best second charge loans for buy-to-let properties, and will be able to assess your circumstances to find the best deal. Make an enquiry here.
Speak to a second charge mortgage expert today
We only work with established brokers in the mortgage industry to provide you with the highest quality advice. Call Online Mortgage Advisor on 0808 189 2301 or make an enquiry here and we'll connect you with someone to discuss your second charge mortgage options for your buy-to-let property.
*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.
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!
Read more about Pete here...