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. Every month, over 6,900 people visit our website for advice on secured loans. 

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?

The two most common reasons people take out a second mortgage are 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 reasons 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

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. 

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?

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, 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?

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.