I think it’s fair to say landlords have really benefitted from our economic situation; low interest rates, attractive property prices and, as mortgage lending restricted on the high street, more and more potential homebuyers saw themselves forced down the rental route. It’s no wonder then optimism among landlords in the UK remains at a record high and according to a recent survey from Paragon Mortgages, a fifth of UK landlords are planning to buy property in the first quarter of this year.
Your clients may be planning such a purchase- fantastic! But what do you do when your client needs to protect their interest rate and hang on to their current mortgage deal? Or they fall outside the lending criteria of the mainstream lenders? Perhaps they simply require a “quicker fix?” What do you do then? Run the risk of losing them?
One possible solution you may not have considered- a second charge on your client’s rental property.
The second charge industry continues to gain momentum, fuelled by the record low rates and innovative flexibility. Over the past year, the dynamics of buy-to-let lending has changed and in a bid to fill any gaps left by the mainstream lenders, secured loan lenders have developed and streamlined a series of competitive products aimed at landlords and property investors. With the aim to offer brokers more opportunities to provide solutions to their clients.
Securing a second charge loan on a rental property is an effective means of raising funds for a variety of reasons. It will allow landlords to make renovations to their property, adding significant value, or help raise the capital needed to place a deposit on another buy-to-let property and expand their portfolio.
In particular, we are seeing an influx of applications from two types of borrower: those who don’t fit mainstream criteria and those landlords and investors who are currently tied into an existing rate for their investment property and want to release equity, without remortgaging. The solution a second charge loan product offers here is to leave the existing deal in place and simply combine it with a separate loan.
In particular, we are seeing an influx of applications from two types of borrower: those who don’t fit mainstream criteria and those landlords and investors who are currently tied into an existing rate for their investment property and want to release equity, without remortgaging. The solution a second charge loan product offers here is to leave the existing deal in place and simply combine it with a separate loan.
For example, we recently completed a case with Shawbrook for a client looking to raise £50,000 to finish off renovations on her rental property. The customer was on a really good mortgage deal and wanted to keep hold of her low rate.
When it came to proof of income, the customer used her rental income as proof of repayments and all she had to do was provide Shawbrook with her tenancy agreement.
Not only did we manage to raise the full amount with monthly repayments of £491 at 11.6% APR, structured over 25 years, the case only took 13 days to complete.
Maeve Ward, sales director, secured lending, Shawbrook Bank said: “This is a great example of where secured loans are able to provide financing options for property investors and landlords.
“The purpose of the loan was to finish the renovations to the property so once completed the property should be worth more in our exposure therefore, less.
“By going down the secured loan route, we were able to help the clients finish their dream build, whilst leaving their existing preferential mortgage in place.”
Customers aren’t limited when it comes to proof of income; borrowers can use the rental income they receive or if that isn’t enough, their own income in addition to the rental income as proof of repayments. And for those borrowers wanting to make their monthly payments lower, the interest-only option is available on a buy-to-let through Blemain Finance and Masthaven Secured Loans.
Plans go up to 80% LTV for both employed and self-employed applicants, thanks to Step One Finance. Rising house prices pushed more borrowers into high LTVs and as a result, second charge lenders have been improving their high LTV products in order to meet demand.
Martin Porter, head of lending at Step One Finance, a provider of secured loans to the BTL sector, said: “We like the buy-to-let sector and are happy to help landlords obtain additional financing which can be useful in enhancing existing properties or expanding a BTL portfolio.
“We decided to provide financing solutions up to a market leading 80% in direct response to feedback we received from our brokers, having access to a higher LTV product will allow them to offer customers more options.
“Our 80% LTV product should serve to fill a huge gap in a market where higher LTVs on rental properties are extremely difficult to obtain through mainstream lenders.”
The highest loan amount on a buy-to-let secured loan is £500,000 and the transaction can complete fairly quickly too, our average is in around 10 working days, which is especially useful if your client is looking for a quicker fix.
Many property types are accepted, including standard construction houses and bungalows, high rise, defective and semi-commercial properties and Blemain Finance will accept buy-to-let applications on ex-council houses and ex-council flats with up to 4 floors. Plus, even if your client is credit impaired, Spring Finance offers a plan for unlimited adverse, opening-up a new route for your clients who were severely hit during the economic downturn.
A second charge on a rental property could even be used to purchase an additional investment property. Purchase buy-to-let products are available through Blemain and most recently, Masthaven Secured Loans. This product is designed to help those borrowers who do not have access to the buy-to-let market, due to difficulty meeting the mainstream criteria.
Nicholas Jones, national sales manager at Blemain Finance, said: “With the rental boom showing no signs of abating and property suitable for buy to let continuing to be snapped up, our company strategy is to provide innovative products in this sector of the market.
“Our own broker survey indicated the popularity of buy to let, with 88% saying they expected to see more business from landlords. We made key changes to our LTVs, rates and valuation types which allow us to offer a more focused range of products for customers.”
The second charge industry has played a very important part in supporting the UK housing market, especially since remortgaging became less attractive to those looking to boost their portfolio and the innovative and flexible financing options provided by the second charge market will redefine the role the secured loan lender plays in the mainstream lending market.
