What is a Second Charge Buy-to-Let Secured Loan?

The UK’s buy-to-let property market has always been something of a safe haven. Today, it is viewed as one of the most incredibly lucrative investment opportunities of recent years – both for newcomers and experienced investors alike. 

Data published by Zoopla indicates an 11% increase in private rental prices during the first three months of 2022, taking the average cost of renting a UK home to £995. This equates to an additional £88 per month, compared to average rents at the start of the pandemic.

“The tenancy renewal numbers we have seen so far in 2022 are unprecedented,” commented Gareth Atkins, Managing Director, Lettings at Foxtons. 

“Steadily increasing demand, severely limited stock and a swift rise in rental prices are all compelling reasons to renew — and renters are responding.”

All of which translates to a golden opportunity for those able to pick up desirable properties in high-demand corners of the country. Investments such as these can be funded with a variety of loans and mortgages, including second-charge buy-to-let secured loans. 

Second-Charge Borrowing

The term ‘second-charge’ applies when a loan is issued against a property that already has a loan/mortgage secured against it. 

For example, your home has a value of £350,000 and you have repaid £250,000 of your mortgage. This leaves you with £250,000 equity in your property, against which you could take out a secured loan or mortgage for any purpose.

As this is a ‘secondary’ loan issued against your home, it is referred to as second-charge borrowing. 

With house prices skyrocketing to unprecedented highs, second-charge loans are becoming increasingly popular among new and established BTL investors.  Homeowners are finding themselves sitting on small fortunes, as the equity they have tied up in their homes increases at record pace. 

All of which represents money that can (and perhaps should) be put to good use, as demand for affordable private lets across the UK likewise hits a record-high.

Who Can Qualify for a Second-Charge BTL Mortgage?

Qualifying for a second charge mortgage follows the same basic principles as applying for a conventional mortgage.

The equity you have tied up in your home will determine how much you can borrow. Second-charge loans are typically issued up to a maximum LTV of 75%. This would mean that if you have £200,000 in equity, you would be able to borrow a maximum of £150,000.

In addition, your application will be processed subject to the usual credit checks and general financial stress tests. You will need to provide extensive proof of income, along with any supporting evidence the lender requires to verify your capacity to meet your repayment obligations.

However, there are alternatives to conventional buy-to-let mortgages available for those with credit issues. If you are concerned about your credit score (or general financial background), discuss bridging finance for BTL with your broker. 

In addition, remember that any applications you submit which are subsequently declined could inflict further damage to your credit score – another reason to enlist independent broker support before applying and checking your repayment terms using a bridging loan calculator beforehand is strongly recommended.