If you own investment properties and you need to access funds quickly, consider a second charge buy-to-let mortgage. It’s a great way to release equity from those properties and it allows landlords to raise funds for whatever need that arises, whether it’s to grow your portfolio or to help with those dreaded emergency renovations!
What is a second charge buy-to-let mortgage?
Much like a second charge mortgage for residential properties , a second charge buy-to-let mortgage is a loan taken out in addition to (but entirely separate from) your first mortgage. This second mortgage is taken out with a different lender.
It is useful for a range of circumstances but doesn’t come without its own risks, so it’s important to have a full understanding of what taking out a second-charge mortgage on your buy-to-let property involves.
When would I take out a second charge mortgage for a buy-to-let property?
There are many situations for which a second charge buy-to-let mortgage is the ideal solution and landlords may find themselves needing to raise funds quickly for all sorts of reasons. A second charge buy-to-let mortgage is worthwhile in the following circumstances:
- You considered remortgaging your property but have been quoted an eye-wateringly high interest rate.
- You would like to release the funds you invested when purchasing the property.
- You want to grow your portfolio and buy another property but need more funds to do so.
- Your property needs emergency renovations and you don’t have enough money for them.
- You would like to extend your property but need to raise funds for it.
Am I eligible?
There are several factors that lenders will look at before agreeing to a second charge buy-to-let mortgage. The most obvious are the same things they looked at when you took out your first mortgage, such as affordability, your financial situation, and credit score. Other criteria to qualify is often that:
- You own a property you don’t use as your primary residence.
- You already have a mortgage on this property that you are still paying.
- You have equity in this property.
- You can prove that you will have no problems in keeping up with the repayments (through income and rental yield).
- You have permission from your first charge mortgage lender to take out a second charge mortgage (this one’s important – if you don’t have permission from your first lender, you won’t be approved for a second mortgage).
Second charge buy-to-let mortgage lenders will also look at your rental income, type of property, and loan-to-value.
Things to consider before taking out a second charge buy-to-let mortgage
It is relatively easy to take out a second charge buy-to-let mortgage and there are many lenders who will offer it, but there are some things to consider before applying:
- Do you have a stable tenancy agreement in place for this property that will allow you to keep up with your repayments?
- What will you do if your tenants move out or refuse to pay their rent? How would you make the repayments if this were to occur?
- Have you considered all the other options for raising funds, such as a personal loan or remortgaging? You want to make sure you’ve looked at all your options before making a decision.
- What is your financial situation? Are there any debts you can clear up to tidy up your finances?
- What about your credit score? Having bad credit won’t stop you from taking out a second charge buy-to-let mortgage, but it could mean you pay higher interest rates on it.
What are the typical interest rates on a second charge by-to-let mortgage?
Buy-to-let mortgage interest rates are already higher than residential mortgage interest rates. And second charge mortgage interest rates are usually higher than first mortgage interest rates, this is because you’re seen as a higher risk to the second lender. The interest rates are usually determined according to this level of risk and will depend on several factors:
- How much you intend to borrow in comparison to your equity. The lower the loan-to-value on your request, the lower the interest rate.
- Your credit history – if you have a poor credit history, you may be considered higher risk and your interest rate could be higher because of it.
- How much landlord experience you have – if you have a good track record of successful rental arrangements, lenders will feel more comfortable approving your second charge buy-to-let mortgage request.
- How well you meet lenders affordability assessment – the stronger your affordability, the lower your interest rate.
As you can see, many of these factors depend on a sort of suitability to the lender. If you are rejected for a second charge buy-to-let mortgage by one lender, it doesn’t mean you will be rejected by them all. There are plenty more fish in the sea! Try another one and see if you’re a better match.
Which lenders allow a second charge buy-to-let mortgage?
The good news is that there are plenty of lenders who offer second charge buy-to-let mortgages. The bad news is that they are not often willing to lend to the general public and will only work through referrals.
Without an in-depth knowledge of the mortgage industry, it can be difficult to determine who the best lender might be for your situation. Many of the high street names will offer a second charge buy-to-let mortgage but you might find a better rate through a specialist lender you had never heard of.
The best thing to do is to speak with a mortgage expert. Not only will they take the time to understand your unique situation, but they have access to specialist lenders and can refer you to the ones they think will suit you best. Speak to the specialists at The Mortgage Hut today.
A second charge buy-to-let mortgage can be a game changer when faced with unexpected renovation emergencies and they’re also a great way to boost your property portfolio. There are many different options available, though, so it’s wise to get advice from a mortgage broker to avoid feeling like you’re in the dark.
FAQs
Frequently Asked
Whether or not a second charge buy-to-let mortgage is a good idea for you will really depend on your individual circumstances. If you are looking to raise funds against your property and have a low interest rate on your first mortgage, a second charge mortgage might be right for you. It’s also a good idea if you are confident that you can comfortably keep up with the repayments because if you fail to do so, you risk losing the property.
Frequently Asked
This would be a third charge mortgage. It would be difficult, but not impossible. You would need help from a specialist mortgage broker because there are only a small number of lenders who will approve this request, so you’ll need the connections!
Frequently Asked
Yes. Taking out a second charge buy-to-let mortgage is often easier and cheaper than remortgaging! There are many lenders who offer second charge buy-to-let mortgages and seeking advice from a mortgage expert will help you find the one that’s best suited to your situation.
