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

second charge mortgage buy to let

For free and impartial money advice and guidance, visit MoneyHelper, to help you make the most of your money.

There has been an upward trend in UK residents searching “second charge mortgage buy to let” online. These people are wanting quick and easy information on the prospect of taking out a second mortgage on their buy-to-let property, or want to use a second mortgage to help fund a new rental investment. 

If you fall into either of these categories, we have the answers you’ve been searching for right below! 

What is a second charge mortgage?

Second charge mortgages are loans secured on a property. They are separate from a residential mortgage used to buy the property. These second charge loans are secured by your available home equity and not repaying them means your home may be repossessed and sold to repay the debt. 

If you are thinking about getting a second charge mortgage, only do so from a lender that is authorised and regulated by the Financial Conduct Authority. 

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Second charge vs second mortgage

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. 

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). 

A number of lenders are willing to offer second charges to landlords, but your rental yield will affect how much you can borrow. You might choose to use a second charge on a rental property to help fund another investment property and grow your property portfolio. 

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

A regulated buy-to-let property is a rental property that is rented out to one of your immediate family members. It is much harder to get a second charge mortgage on a buy-to-let property if you are renting out to a close family member. 

However, there are still some lenders willing to provide second charge mortgages to these types of landlords. 

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. 

Can a mortgage company refuse a second charge?

Mortgage companies can refuse second charge loan applications. If you do not meet the lender’s affordability test they will reject your application. The lender must ensure you can afford the second charge as part of its responsible lending commitment. 

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

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. 

Why take out a second charge mortgage?

The two most common reasons people take out a second mortgage is to either complete home improvements and renovations or to consolidate debts. The former includes anything from redecorating a full hour to adding a conservatory or converting a loft. While the latter is a strategy used to make multiple debt repayments easier and a little cheaper. 

But these aren’t the only reason homeowners decide to take out a second mortgage. They also use them to:

  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

Can I use a second charge to buy an investment property?

You could use a second charge mortgage taken out on your residential property or BTL property to fund another investment property purchase. The second charge loan amount may be used to help purchase an investment property outright, or it may contribute to your deposit to get a buy to let mortgage. 

However, using a second charge to get a new buy-to-let mortgage may not be so easy. You’ll need to disclose the second charge debt within the mortgage application, and this debt will be considered within affordability checks. 

Is a second charge mortgage a good idea?

Taking out a second charge mortgage can be a beneficial way of accessing credit for homeowners and landlords. You may be able to borrow much more using these loans compared to others, and you could get a lower rate of interest to boot. 

Of course, there are also risks associated with using second charges and you should be cautious and sensible about using them. And don’t forget to only consider mortgage lenders that are authorised and regulated by the Financial Conduct Authority to avoid scams.

Can you remortgage a second charge mortgage?

It is possible to remortgage a second charge mortgage to secure a better deal, but you’ll need to factor in any additional fees which could make the process less beneficial. Naturally, it is much more difficult to refinance a second charge mortgage than it is to refinance a first charge mortgage. 

Can you have two second charge mortgages?

It is possible to have two second charge mortgages on two separate properties, and it is even possible – albeit difficult – to have two second charge mortgages on the same property. 

Getting two second charge mortgages on one buy-to-let property is also possible, although this could be exceptionally difficult and is almost unheard of unless the first charge has already been paid off in full. 

More free info on second charge mortgages!

Further information and FAQs answered can be found on our other second mortgage guides and discussion posts. We have been dissecting plenty of topics associated with second charge mortgages in the UK. 

Read them for free on MoneyNerd and avoid confusing jargon!