Second Charge Mortgage Buy-to-let – All You Need To Know

Are you thinking about a second charge mortgage for your buy-to-let property? It's all right if you're not quite sure what it means. You're in the right place to learn about it.

In this easy guide, we’ll explain:

• What a second charge mortgage is
• The costs of a bad second charge mortgage
• The difference between a second charge and a second mortgage
• How a second charge works on buy-to-let properties
• If you can afford a second charge on your buy-to-let property

We know it might feel tricky. But remember, we’re here to give you clear and simple advice.

Second charge vs second mortgage

In my experience, a second charge mortgage is often referred to as just a second mortgage. However, this can cause some confusion because a second mortgage may also refer to a second mortgage used to buy a property rather than an additional loan to the same property.

It’s usually easy to understand what is meant by the context of the conversation. But not always, as you can see here in this post from a forum user on MoneySavingExpert, who wanted a second charge mortgage, but their lender presumed they wanted to take out a ‘second mortgage’.

Why take out a second charge mortgage?

Common purposes include home improvements and debt consolidation. Consolidation may simplify payments but can increase total cost, particularly over a longer term.

Any use must be permitted by the lender. Depending on the product, proposed purposes might include:

1. Pay for a new car
2. Cover private medical bills
3. Pay for education
4. Help family members out with money
5. Buy a holiday home

Second charge mortgage on buy-to-let properties

Second charge loans are typically taken out on residential mortgages for a number of reasons, some of which are discussed later in this guide. But it is also possible to take out a second charge on a buy-to-let property that is being rented out to others (your tenants). 

Availability depends on the lender, combined security, rental-cover and other criteria. Include tax, repairs, insurance, empty periods and rate rises in the budget; the property is at risk if payments cannot be maintained.

Can I take out a second charge on a regulated buy-to-let property?

The regulatory position is not defined simply by having an immediate-family tenant. It depends on the borrower, occupation, purpose and applicable exemptions. Regulated residential mortgages, consumer buy-to-let and business buy-to-let have different regimes.

Use an adviser familiar with the intended letting arrangement and disclose who will occupy the property so the correct product and permissions can be checked.

Can I afford a second charge on my buy-to-let property?

Calculating the affordability for a second charge mortgage on a buy-to-let property is a little more complex than calculating its affordability on a standard residential mortgage. This is because the amount of rental income you are forecasted to make is also taken into account. 

This is on top of the standard checks looking at your:

1. Income
2. Ongoing debts, including first charge mortgage(s) 
3. Credit score
4. The available equity in your BTL home

Personal circumstances will dictate if you are judged to be able to afford the second charge mortgage. 

Additional fees

You should also bear in mind that second charge mortgages will likely come with additional fees such as arrangement fees, valuation fees, and early repayment charges, so you should factor those into the cost.

Can a mortgage company refuse a second charge?

Both the proposed lender’s criteria and any required consent or priority agreement with the first lender matter. Do not assume an existing mortgage permits a further charge.

If you are refused one of these loans, it may be worth spending more time saving, so you need to borrow less, which may then be possible through a different loan type. 

Will my application be rejected if I have bad credit?

They might even reject your application if you have bad credit. However, if your credit rating is unsatisfactory, but you prove you can afford the loan, you may still be approved. If approved with bad credit, you might be offered a higher interest rate or be restricted on how much you can borrow. 

The impact of economic trends

Economic factors, such as inflation, interest rates, and the overall health of the UK’s property market, can also influence whether mortgage companies are likely to approve a second charge mortgage.

Can you have two second charge mortgages?

Separate properties can each have a second charge. On one property, additional secured loans normally rank as later charges, such as a third charge, unless different priority arrangements are agreed.

Further borrowing on a mortgaged buy-to-let property depends on consent, charge priority, security and lender acceptance. Repayment of the original first charge is not a universal precondition.