How brokers can help landlords boost yields through second charge lending

In today’s challenging property market, brokers are under pressure to find practical financing solutions for buy-to-let clients looking to improve yields.

Over the past 18 months, many landlords have seen margins shrink due to higher interest rates, stricter stress testing, and changes to tax relief and stamp duty. Rental growth has also levelled off in many regions, prompting some investors to reconsider their strategy.

This has led to more interest in semi-commercial or unusual properties, especially those needing refurbishment or offering a mix of residential and commercial use, as investors look to boost returns.

These types of properties often fall outside mainstream lending criteria. That is where specialist lenders and second charge mortgages can come into play.

Using second charge lending to raise capital

Second charge mortgages are being used more frequently to help landlords fund refurbishment works or raise deposits for onward purchases. This type of finance enables investors to release equity from an existing property without altering their first charge mortgage.

This can be especially useful when the existing mortgage has a good rate or high early repayment charges. In these cases, a second charge can provide access to funds without triggering additional costs.

Another key benefit is speed. Second charge loans are often quicker to arrange, making them a good option when time is limited, such as when buying a property below market value or at auction.

What second charge mortgages are used for

Second charge loans can be used for a range of purposes. One common use among landlords is to raise capital for:
● a buy-to-let purchase
● commercial premises
● refurbishment of a property to increase rental value
● converting a house into an HMO

They can also be used to manage tax liabilities or consolidate debts, which may help improve cash flow and allow reinvestment into higher yielding assets.

Interest in semi-commercial and unusual properties

Semi-commercial properties – such as a shop with flats above – are becoming more popular, particularly in regional towns and around larger cities like London and Manchester.

These properties provide a mix of income streams and tend to be more affordable per square foot than fully residential or commercial units. This can make them attractive for landlords looking to improve returns or recover from previous financial setbacks.

Stamp duty can also be lower on mixed-use properties, which helps to reduce acquisition costs.

Why specialist lenders are important

Financing these types of properties is not always straightforward. Vacant commercial space, missing features like a kitchen or bathroom, or ongoing refurbishment works can all make a property “unmortgageable” for mainstream lenders.

This is where specialist lenders can help. Many will lend on semi-commercial or part-complete properties, as long as there is a clear plan in place. Most adopt a manual approach, working with brokers to understand the full picture.

This allows brokers to place more complex cases and helps investors buy and improve lower value assets that might otherwise have been overlooked.

As always, affordability remains key. Both lender and broker must ensure the finance is suitable and the investor can afford the repayments, especially when income is irregular or tied to rental income.

Specialist lenders understand these cases better, including where income is channelled through SPVs or limited companies. They are often better placed to assess the risk and support brokers in structuring the deal.

Conclusion

In a market where many deals fall outside the mainstream, brokers have a vital role to play in helping landlords act quickly and efficiently.

Working with a lender that offers second charge loans and flexible options for semi-commercial or part-complete properties can unlock new potential for clients – and generate more opportunities for brokers too.