"The key to the solution for the borrower is finding the right broker who can look at the circumstances and make the appropriate recommendation"
There is no single solution which will be ideal for every client and every circumstance, which is why a good broker will be able to look at the case and make the appropriate recommendation. They might suggest a second change bridging loan; a second charge buy-to-let; a homeowner business loan, or a second charge mortgage.
Let’s look at the EPC example, as it’s very pertinent right at the present time - brokers should be contacting their landlord clients now and seeing if they can help with raising the funds needed to get properties up to the required energy efficiency standards. (Come 2025, they’ll need an EPC of at least ‘C’ for all new tenancies.)
The likelihood is that a number of buy-to-let investors will have secured low fixed rates and will be loathed to remortgage. That’s where a second charge buy-to-let loan can be the ideal solution. It can be used by the landlord to borrow money using the equity in their buy-to-let property or portfolio of properties. They can then make the required energy efficiency improvements to their existing properties and remortgage when they’re ready, using the improved value of the property to secure another preferential rate.
An alternative in this case would be a second charge bridging loan. One of the benefits is that the loan can be processed much more quickly so funds will be with the client much sooner. It also suits when they don’t want to make a monthly payment, choosing to roll up the interest instead or require a shorter term.
In both the above cases, the second charge allows the mortgage to remain in place whilst enabling the customer to capital raise the monies required to carry out the necessary upgrade. LTVs aren’t stingy either; at Mercantile Trust, for example, we offer both second charge buy-to-let and bridges up to 75% LTV, with first-time borrowers and first-time landlords accepted up to 65% LTV.
For those looking to borrow for commercial reasons – perhaps the client wants to set up a new business – then there is a further second charge option, which is not as well known among the broker community: the regulated second charge for business purposes.
This has all of the features of a second charge, but is secured against the borrower’s home, despite being for business reasons. A landlord may be suited to this option if there is no equity that they can use in their buy-to-let portfolio, for instance.
The other option that should be considered is the homeowner business loan. At Mercantile Trust, we offer these to allow property professionals/business owners release equity from their main residence for business purposes where speed and a shorter term than that of a conventional first or second charge mortgage are necessities.
The homeowner business loan is ideal when the borrower’s portfolio might not have the required equity or they are faced with the challenge of the first mortgagee not consenting over a certain LTV.
We find that the typical business purpose use in this case is either portfolio expansion/buy-to-let deposit; the funding of the next business venture; a property purchase; EPC-related upgrades or another business purpose such as paying a tax bill.
If you’re not aware of these loans then you may be surprised by the details. At Mercantile Trust, for example, rates start from 0.95% and loans from £25,000 to £250,000 are available up to 75% LTV. The term is from three to 18 months, with no exit fee and one unit of adverse in 12 months allowed. As with all of the products mentioned above, the homeowner business loan is available across the whole of the United Kingdom.
Whether the answer is a buy-to-let or bridging second charge, a regulated second charge mortgage for business purposes or a homeowner business loan, the key to the solution for the borrower is finding the right broker who can look at the circumstances and make the appropriate recommendation; therefore it’s vital that brokers ensure they’re aware of all of the options and when each is most suitable – their business clients will certainly thank them for it.
