Categories: guides | guides buy to let mortgage guides
guidesA second charge buy to let mortgage, also known as a second charge loan or secured loan, allows landlords to borrow money against a rental property that already has an existing mortgage.
Rather than replacing the original mortgage, a second charge sits behind it, secured against the same property. This means you keep your current mortgage in place and take out additional borrowing on top.
Second charge lending has become increasingly popular among landlords and property investors who want to unlock equity, but do not want to remortgage their main loan.
This can be particularly useful if your current mortgage has:
- A low interest rate
- Early repayment charges
- Favourable terms you would prefer not to lose.
How a second charge mortgage works
When you take out a second charge BTL mortgage, the lender places a second legal charge on your property (in addition to the one that is already in place with the current mortgage). Your first mortgage lender retains priority, meaning they are repaid first if the property is sold or repossessed. The second charge lender is repaid from any remaining proceeds after the first mortgage has been settled.
Because of this increased risk to the lender, second charge interest rates are typically higher than standard BTL mortgage rates. However, they can still be a cost-effective solution when compared to remortgaging, especially if exiting your current deal would trigger significant penalties.
You continue to make repayments on both loans separately. The first charge mortgage remains unchanged, while the second charge loan has its own term, interest rate, and repayment structure.
Who can apply for a second charge buy to let mortgage?
Second charge buy to let mortgages are available to individual landlords, portfolio investors, and limited companies. Eligibility will depend on several factors, including:
Your equity position
Lenders will require adequate equity in the property. Combined borrowing across both mortgages typically cannot exceed 75% loan to value.
Rental income
Lenders will assess rental coverage to ensure the property generates enough income to cover both mortgage payments. Stress testing is applied, similar to first charge buy to let mortgages.
Credit profile
Your personal or company credit history will be reviewed. Some lenders are flexible and will consider applicants with historic adverse credit, but others may not.
Property type
Standard residential buy to let properties are the easiest to place, but second charges can also be arranged on HMOs, multi-unit blocks, and holiday let properties, subject to your needs and circumstances aligning to lender criteria.
What can a second charge buy to let mortgage be used for?
Second charge buy to let mortgages are extremely versatile and can be used for a wide range of purposes. Some of the most common reasons landlords use them include:
Raising funds for further property purchases
Many landlords use second charges to release equity for deposits on additional buy to let properties. This allows portfolio growth without disturbing existing mortgages, and allows you to move more quickly if an opportunity to invest arises soon after remortgaging a property. It is then possible to repay the second charge at the next renewal date.
Refurbishment and improvements
If you want to refurbish a rental property, improve energy efficiency, or carry out structural works, a second charge can provide the necessary capital. Improvements may also increase rental income and property value.
Paying tax liabilities
With higher taxes and reduced mortgage interest relief for individual landlords, some use second charge loans to manage tax bills or settle outstanding liabilities during the initial rate period when remortgaging would incur Early Repayment Charges.
Debt consolidation
Second charges can be used to consolidate unsecured debts into a single, potentially lower monthly payment. However, this increases your debt, which is secured against your property, and as such puts your property at risk, so ensure both payments are affordable for you.
Business investment
Some landlords use funds for other business ventures, such as development projects, commercial property purchases, or flipping property.
Covering large one-off expenses
This could include legal costs, stamp duty, lease extensions, or even personal expenses, depending on lender policy.
Advantages of a second charge buy to let mortgage
One of the biggest advantages is avoiding early repayment charges. If you are tied into a fixed-rate deal with significant penalties, a second charge lets you raise funds without breaking that contract.
You also keep your existing interest rate, which can be beneficial if you secured a very favourable low rate when you last took a mortgage. Remortgaging could mean moving onto a much higher rate, increasing monthly costs substantially.
Speed can be another benefit. Second charge loans are often quicker to arrange than full remortgages, making them useful when you need funds promptly for a purchase or time-sensitive opportunity.
Flexibility is also key. Lenders are often more accommodating on loan purposes, property types, and borrower circumstances compared to mainstream buy to let mortgages.
Disadvantages to consider
Interest rates are usually higher than first charge mortgages, due to increased risk for lenders. This means overall borrowing costs can be higher.
You will have two mortgage payments instead of one, which can affect cash flow. This needs careful planning, particularly if rental income fluctuates.
Because the loan is secured, failure to keep up with mortgage payments could put your property at risk. This makes professional advice and affordability checks essential.
Some first mortgage lenders do not allow a second charge to be added to a property they are lending on, so you must talk to your first charge lender to get their consent.
Second charge vs remortgaging
Landlords often ask whether they should remortgage or take out a second charge. There is no universal answer, as it depends on your circumstances.
Remortgaging may be better if your existing deal has ended and you can secure a competitive rate while borrowing additional funds. This can simplify your finances with a single loan.
A second charge may be more suitable if:
- You have a low fixed rate you do not want to lose
- Early repayment charges are applicable
- You only need a relatively small amount of capital
- You want a shorter loan term for the extra borrowing
As a specialist broker, we can run both options side by side to determine the most cost-effective solution for you.
How much can you borrow?
The amount you can borrow depends on:
- The property value
- Outstanding balance on your first mortgage
- Rental income
- Your personal or company income and commitments
Most lenders cap total borrowing at a maximum loan to value, usually at 75%. Affordability stress tests will also apply, often assuming a higher interest rate than the actual product to ensure resilience.
The application process
The process is similar to a standard buy to let mortgage but usually faster. It typically includes:
- A property valuation
- Rental income assessment
- Credit and affordability checks
- Legal work to register the second charge
Working with a specialist broker is crucial, as this market is more niche and criteria varies widely between lenders.
Final thoughts on second charges
A second charge buy to let mortgage can be a powerful tool for landlords looking to unlock equity without disrupting existing mortgage arrangements. Whether you want to grow your portfolio, fund renovations, or manage cash flow, it offers a flexible alternative to remortgaging.
However, it is not suitable for everyone. Higher interest rates, increased monthly commitments, and securing additional debt against your property all need careful consideration.
As a specialist mortgage broker, we always recommend tailored advice. By reviewing your portfolio, current deals, and long-term strategy, we can help determine whether a second charge mortgage supports your investment goals and structure it in the most cost-effective way possible.