A secured loan has the potential to be advantageous over unsecured loans in many ways. Along with being quicker and easier to arrange, a secured loan may also offer a much lower rate of interest and reduced overall borrowing costs.
How Secured Loans Work
If you prefer not to use the home where you live as security, can you use a Buy to Let property as security for a loan instead?
The short answer is yes. Even if you have an outstanding Buy to Let mortgage balance, you can still use your investment property as security for a loan, provided you have the required amount of equity and income.
If you are not repaying a mortgage on the property in question, the secured loan you are applying for is referred to as a second charge mortgage or homeowner loan. The amount you will be able to borrow will be determined by how much equity you have in the Buy to Let property and to some degree, rental and personal income.
For example, if you have repaid £50,000 of a £150,000 mortgage on a property valued at £200,000, you potentially have £100,000 of equity. This would therefore be the absolute maximum you would be able to borrow in the form of a second charge mortgage. Lenders may also require a minimum amount of personal income and the rent to easily cover with excess and with varying degrees, the agreed monthly repayments of both the first and second charge mortgages.
Which Banks and Lenders Offer Second Charge Mortgages?
This is where things may get a little tricky, as most mainstream banks and lenders do not currently offer second charge mortgages, especially if they are not the first charge mortgage holder. Major High Street banks are almost always unwilling to lend against Buy to Let properties, making it necessary to consider independent lenders.
Second charge loans also normally require the consent of the first charge mortgage holder to enable them to obtain a standard charge. This may or may not be agreed.
It is important to remember that many of the market’s most competitive lenders operate exclusively via established independent brokers. Consulting with a broker before applying for a second charge mortgage against a Buy to Let property is therefore essential, in order to ensure you get the best possible deal.
What Are the Benefits of a Second Charge Mortgage?
A potential benefit of a second charge mortgage and secured loans is that that the amount of money borrowed can be repaid over an extended term to maximise affordability.
You may also have the opportunity to repay your loan earlier than agreed, with no early repayment charges imposed. Applicants with a poor credit history and/or requiring higher than normal income multiples to prove affordability are also welcome, as secured loans are usually issued with a more generous income stretch than with a first charge mortgage loan and are usually more sympathetic on credit issues.
Secured loan interest rates and overall borrowing costs can also be exponentially lower than those of a comparable unsecured loan.
Compare the Market for the Best Deal
Whether you are ready to go ahead with a secured loan application or would like to discuss the benefits of a second charge mortgage in more detail, we are standing by to take your call.
Contact a member of the team at UK Property Finance for more information, or to arrange an in-depth market comparison to help you get the best possible deal.