Second Charge Mortgages for Buy to Let
What is a second charge mortgage?
A second charge mortgage allows you to take a second mortgage on an already mortgaged property. It can also be known as a secured loan or a second mortgage.
How does a second charge mortgage work?
Like a “normal” buy to let mortgage, the property is still security for a second charge mortgage. While the original mortgage remains in situ with the same repayments to the original lender, a secured loan will always be with a different lender. As the secured loan is ranked second to your primary/first mortgage, if you do not repay the debt and the property is sold, the first mortgage lender is repaid before the secured loan.
Why would you get a second charge mortgage?
The most common reason for getting a second charge is if you need additional funds but are fixed into an existing mortgage with Early Repayment Charges (ERCs) that would be expensive to pay.
For example, if you want to make energy-efficient improvements to your buy to let property or raise capital for another investment purchase but are only three years into a five-year fixed term. Second charge mortgages are usually set up to finish at the same time as the original mortgage, so when the first mortgage is up for renewal, you can remortgage and consolidate both outstanding debts into one.
Can a mortgage company refuse a second charge?
Yes. Not all buy to let mortgage lenders allow you to have a secured loan on a property they have the first charge over. In the event of a repossession, having a secured loan increases the risk of the first lender making a loss if the property doesn’t sell for enough money.
Is it easy to get a second charge mortgage?
Yes and no. Whether you can get a second charge mortgage on a buy to let property depends on several factors:
Firstly, does your existing BTL mortgage lender allow for second charges?
Secondly, is the property worth enough and has enough equity in it to meet the loan to value (LTV) requirements?
Lastly, does the rent satisfy the affordability calculations for the secured loan?
Furthermore, as fewer than five buy to let lenders offer second charge mortgages, your options are limited; an experienced buy to let broker is essential to run the numbers through different lender criteria to find a match.
How much can you borrow on a second charge mortgage?
Minimum loans for second charge mortgages are similar to “normal” buy to let mortgages, around £25-50,000. Maximum loans depend entirely on your LTV requirements, but maximum loans are usually around £250,000.
Second charge mortgage rates
There’s no getting away from it; secured loans on buy to let properties attract higher interest rates. The interest rates start from 5.99%, so it would be worth sitting down with your broker and exploring all your options first.
How can Mortgages for Business help?
While only a handful of buy to let mortgage lenders offer second charge mortgages, we have access to them. More importantly, we also have the knowledge and experience to navigate these complicated deals and secure the property finance you need.