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, growing 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 there are lots of lenders who offer second charge BTL mortgages. And they 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. And 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?

When it comes to assessing eligibility, one of the most important factors will be rental yields. Lots of 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 lenders’ decision. A higher loan to value increases the risk to the provider which can result in higher rates and reduced affordability. And some lenders will insist you retain a minimum of 20% equity after taking out the second charge (up to 30% with some).

For HMOs, some providers will have restrictions in place regarding the number and size of bedrooms in the property and whether it is joint or several liability. HMO second charges are something of 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 somewhere between 2%-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 you may be offered a high rate (or even be rejected) by one lender, 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 which is right for you will be determined by your current situation and future plans.

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?

There are lots of lenders who 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. But you may find a much better rate by using a specialist lender that has no high street presence but is focused on niche mortgage products.

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