Interest only second charge loan on a buy to let property

THE SCENARIO

I recently secured an interest only second charge loan for a divorced couple who were looking to remortgage and raise capital on an existing property. These clients own a buy to let flat located in central London – a prime location for the current buy to let boom – and they were looking to remortgage in order to raise capital to pay for school fees.

The buy to let property was worth £750,000 at the time, with a first charge mortgage of £300,000. As my client was the principal earner and the couple lived apart, he was also paying financial support to her, which had the potential to throw a few spanners in the works.

The largest problem I faced with this case, however, was that financially he had a poor credit history. Along with this, she was not working and had no other form of income to base the affordability on. Because of this, I knew the most challenging factor would be to find a lender who would overlook my client’s credit file, which is where my access to contacts across the market came in handy.

OUR SOLUTION

Having weighed up my clients’ options and explored potential solutions, I realised my clients’ current mortgage was actually on an excellent rate and that it would be more economical to raise capital by using a second charge mortgage rather than remortgaging the first charge mortgage. This meant that remaining with the existing lender for a second charge mortgage would result in a more cost effective rate.

Following this, I worked with the lender to arrange the appropriate second charge mortgage of £75,000. This was a reasonably stress-free process and a great result for my clients, which also shows an example of an alternative way to raise capital rather than remortgaging on a like-for-like basis.

I secured the second charge loan at a rate of 8.45% with a loan to value (LTV) of 50% on a 4 year interest only term. Despite being a higher rate, this was beneficial as it meant they were able to keep the 1.15% on the existing £300,000.