Last reviewed on 25th September 2023 by Martin Alexander (Mortgage Advisor)
Secured loans certainly have their place in the market, particularly in the buy to let arena. Secured loans can make financial sense and are increasingly being used. That being said, the majority of property investors we speak to, still aren’t aware that secured loans can be used for property investment.
The general consensus is that lenders are restricted more now than in previous years. Before the credit crunch in 2007, the mortgage market was wide open. Lenders were a lot more relaxed and applicants were self-certifying their own mortgages. As the mortgage market became increasingly restrained, secured loans gained popularity.
Can I get a secured loan on a buy to let?
It’s possible to get a secured loan on a buy to let property, but you will have to meet certain criteria. You’ll need enough equity in the property you’re offering for security, along with meeting a lender’s affordability criteria.
From an advisor’s perspective, it’s also key to understanding the reasons for wanting a secured loan for a buy to let, as opposed to a mortgage. There are of course reasons why a secured loan may be more suitable, but they can be a higher risk than buy to let mortgages. This is because you’ll need to provide an asset, such as your home as security for the loan.
How does it work?
A secured loan is placed against an asset, giving lenders security for their loan. When a secured loan is used for a buy to let property, the loan is secured against an existing property, such as your home or another buy to let that you own. Lenders may also refer to this as a buy to let second charge.
Secured loans for buy to let properties can then be used against the equity you have in other assets. This can be great for leveraging your existing assets to purchase buy to let property. Your existing mortgage lender may need to provide consent before securing a loan on the property.
Read more: What is a second charge mortgage?
Can I purchase a buy to let using a secured loan?
Secured loans are versatile products. They can be used to purchase buy to let property and used to refurbish your buy to let or both! Lenders will first assess the equity you have in your assets and whether or not a second charge can be placed on the property that you own. This involves getting consent from first charge lenders where necessary. A valuation will also be carried out on any properties that you wish to use as collateral for the loan.
Once lenders have assessed your proposal, a check will be made on your own details, such as your credit score and affordability. Secured loans for buy to let can be easier to obtain than buy to let mortgages and can be processed a lot faster. This can be crucial in securing a great property deal or when you need finance quicker than traditional routes, such as buying at an auction.
When is it suitable to use a secured loan for a buy to let?
Mortgages taken out decades ago, tend to have great rates. Previously, interest rates were a lot higher and certain tracker products followed the Bank of England base rate and nothing else! Landlords with mortgages such as these may consider secured loans as opposed to releasing equity with a remortgage.
If you have an early exit fee from your mortgage but need to raise finance against the home, a secured loan could be ideal. As mentioned above, where speed is a necessity, secured loans tend to be faster than mortgages.
Landlords with portfolios may have already borrowed their maximum allowances from certain lenders. Using a secured loan in circumstances such as these can allow landlords to expand their portfolios when mortgage lending is scarce. Choosing whether to remortgage or take a secured loan will all depend on the nature of the investments and the personal circumstances of the borrower.
The use of secured loans really depends on your own circumstances. As with any financial product, there is a time and situation to either use or avoid certain products. Our advisors specialise in raising finance for buy to let property and can help assess your situation. For a more tailored answer to your circumstances, you can make an enquiry today.
Eligibility criteria for a secured loan on a buy to let
To get approved for a secured loan on a buy to let property, lenders will assess the following criteria:
- Equity – Lenders will require you to have equity in the property you’re using for security. In most cases, this can’t exceed 75% of the property’s value. For instance, if your property is worth £300,000 and you have £150,000 equity, you could borrow an additional £75,000 with a secured loan.
- Rental income – You’ll need to show that the rental income can cover the repayments of your secured loan. While lenders will also assess your affordability, your rental income should cover at least 125% of the loan repayments. This is to ensure the loan is being used with a viable property investment.
- Credit history – Before being approved, lenders will carry out credit checks. It’s possible to get a secured loan with credit issues, but it can limit your options. Having a good credit score can give you access to more lenders and better rates.
- Property condition – Some lenders only offer secured loans for certain types of buy to let property. For instance, finding a lender for a residential buy to let will be easier than finding a secured loan for an HMO. Furthermore, most lenders will require the property to be in good condition. If your property is severely in need of renovation, you could be refused.
- Lender’s consent – If you’re placing a secured loan on a property that already has a mortgage, your existing lender will need to provide consent. This is because your existing lender needs to ensure the loan you’re securing on your home doesn’t impact your current mortgage.
Are secured loans suitable for property investment?
Secured loans can be taken for up to 30 years. At times, even longer! This makes secured loans different from bridging loans, where finance can also be arranged at lightning speeds but only for short periods. Secured loans can also be taken out on a repayment or interest-only basis, similar to mortgages.
A buy to let secured loan can be arranged for up to 85% loan-to-value (LTV) and on occasion even more. As products are constantly changing, you can consult an advisor who can give you a tailored answer. LTV will also depend on your own affordability and the equity you have in your existing property.
Buy to let specialist brokers
It’s recommended that you speak to a specialist if you’re a landlord contemplating a secured loan for buy to let. Our advisors can assess your financial status to check whether a secured loan is your best option. With access to every lender and exclusive rates, our advisors can search the entire market for you.
Mortgages and secured loans are just two types of finance available in the market. Depending on the scope and nature of your buy to let proposal, there may be more viable options to choose from. You can make an enquiry now or call on 0800 195 0490.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.