Buy to let secured loans are a specialist product that could help you improve your financial situation without placing your own home on the line. They can be used to release equity from an investment property, allowing property investors to raise money against their property portfolio.
What we cover in this article:
- What is a buy to let secured loan?
- Can you get a secured loan on a buy to let property?
- Why take out a buy to let secured loan?
- When should I consider a secured buy to let loan?
- What are the eligibility criteria for buy to let secured loans
- How do I apply for a buy to let secured loan?
- What rates can I expect to pay for a buy to let secured loan?
- What are the alternatives to a buy to let secured loan?
- Types of secured buy to let loans
What is a buy to let secured loan?
A secured loan involves borrowing money from a secured loan lender, using the equity in a property as collateral. In the case of a buy to let secured loan, this will obviously need to be a BTL property that you own.
So, imagine that you have a buy to let property registered in your name with £100,000 in equity, but you are keen to make improvements to this property that will potentially increase your rental yield, you can apply for a secured loan.
Can you get a secured loan on a buy to let property?
Yes, buy to let properties qualify for secured loan lending. Particular criteria do apply, however, which we will elaborate upon shortly.
Why take out a buy to let secured loan?
Reasons to consider taking out a buy to let secured loan include the following:
- When we compare secured loans to unsecured loans, secured loans typically allow you to borrow more money, at a lower interest rate, over a longer repayment term.
- Securing a loan against a buy to let property means you can access funds without putting your primary residence at risk.
- Taking out a secured loan can improve your credit score, especially if you use the funds to consolidate multiple unsecured lines of credit. A secured loan, like a mortgage, is not considered in your credit utilisation score when calculating your credit score.
- If you use the money to make improvements to a buy to let property or for building works such as an extension, or general property refurbishment, you can potentially increase your rental yield.
- A secured loan on a buy to let property can reduce your property income tax bill, as you can balance any increased rental profits with the interest payments you need to make on the loan.
When should I consider a secured buy to let loan?
You should consider a secured buy to let loan in the following g situations:
- You want or need to make improvements to this property, or another in your portfolio (including your own residence.)
- You wish to expand your property portfolio and need a cash advance to lay down as a deposit or to purchase a property at auction.
- You are looking to start a business and need capital to get yourself up and running.
- You wish to consolidate several unsecured debts into one manageable monthly repayment.
- You need to make a substantial one-off payment, such as purchasing a new car, paying for a wedding or a child’s university education, or wish to take a dream holiday that would otherwise be beyond your financial reach.
If you obtain an attractive interest rate on your buy to let secured loan, you can save yourself a great deal of money – and maybe even turn a substantial profit.
What are the eligibility criteria for buy to let secured loans
Unlike unsecured loans, your eligibility for a buy to let secured loan will not rely solely around your credit score. While this may still play a role – a higher credit score will likely aid your application for the best possible interest rate – affordability is a more significant concern to lenders that provide secured loans.
When reviewing a buy to let secured loan, most lenders base their decision on your rental income from the property. If the combined repayments for the loan and your mortgage come to £800, most lenders will want to see evidence of a rental yield of at least £1,000 (25% higher than your total loan repayments).
In addition to proof that you can comfortably make the repayments, you will also need to meet the following criteria to qualify for a buy to let secured loan.
- Equity of at least 20% of the property’s total value – ideally more.
- Permission from your mortgage lender (if applicable) to take out a secured loan. Using this property as collateral also places your mortgage provider’s asset on the line.
Some lenders also place age restrictions on buy to let secured loans, declining to work with anybody under the age of 21.
How do I apply for a buy to let secured loan?
Unlike unsecured loans, secured loans – and especially buy to let secured loans – are not easily accessible to the general public. If you are looking for a reputable lender that will offer you the best interest rate and terms, you may find it easier to use a secured loan broker.
Your broker will discuss your unique financial situation with you and identify the best buy to let secured loans that suit your circumstances.
Most brokers charge large fees, often as much as 12.5% of the total sum you borrow. ABC Finance offers our services for a flat rate of just £1,495 – regardless of how much money you borrow.
What rates can I expect to pay for a buy to let secured loan?
Secured loans come with lower interest rates than unsecured loans. Numerous factors will influence the interest rate you will be offered on your buy to let secured loan, but most offers will come in between 6.5% and 12%.
These are a little higher than the interest rates assigned to a loan secured against your residence, but will still likely compare favourably to an unsecured loan – especially if you’re looking to borrow quite a substantial sum of money.
What are the alternatives to a buy to let secured loan?
Buy to let secured loans are just one option open to you. If you are unsure whether a secured loan is the best way to access the funds you need, consider these alternatives.
|Unsecured loan||If you have a good credit score, you could apply for an unsecured loan of up to £25,000. This will have a shorter repayment term and a higher interest rate than a secured loan, so you’ll likely need to make larger monthly payments to your lender, and can be detrimental to a credit score. However, unsecured loans are typically arranged faster – you could even have your funds within 24 hours if approved.|
|Bridging loan||A short-term form of lending designed to ‘bridge’ a gap in your finances while you wait for income. Bridging loans are ideal if you are selling one property and want to lay down a deposit for another but need to act quickly. It could take 12 weeks or longer for a sale to finalise and for you to receive your money, and in that time, an opportunity could pass you by. Bridging loans need to be repaid in full at the end of a term, so only consider this line of credit if you are confident you will be able to cover the cost.|
|Remortgaging||You could remortgage your buy to let property with a different mortgage provider. If you can provide a compelling reason, your new mortgage lender may also allow you to borrow more money on top of porting the outstanding repayments owed on the property. Only consider remortgaging if you are close to the end of a term, as early exit fees can be pretty punishing.|
Discuss these options with a secured loan or mortgage broker, and assess whether any may serve your needs better than a buy to let secured loan.
Types of secured buy to let loans
Buy to let secured loans will come under one of two categories.
- Unregulated buy to let secured loans apply to properties you have purchased with the intention of renting to private tenants. These loans will not be regulated by the Financial Conduct Authority.
- Consumer buy to let secured loans apply when a property is inherited in a will, or that you formerly occupied as a primary residence and are now renting. The FCA regulates these loans as standard.
The core difference here is that an unregulated secured loan will not see your loan covered by the Financial Conduct Authority (FCA). This means that you are not protected by FCA policies against substandard financial advice or bad-faith sales tactics from a lender or broker.
This is another reason why it is so critical to team up with a reliable secured loan broker. ABC Finance will only make arrangements with legitimate and reputable lenders, providing peace of mind.
If you still have queries about by-to-let secured loans, here are answers to the most common questions that arise.
How much can I borrow?
The amount you can borrow depends on the loan to value of your application and your rental income.
What can a secured loan be used for?
Secured loans can be used for just about any legal purpose. Popular reasons to take out a secured loan include consolidating unsecured debt, making home improvements, paying for an expensive one-off purchase such as a holiday or new car, or investing in a business venture.
How long can I borrow the money for?
A buy to let secured loan can be repaid over 30 years if your lender agrees to such a lengthy term. If this schedule takes you past retirement age, your lender may restrict you to a shorter repayment term. While longer loan terms can reduce your monthly repayments, you’ll also pay considerably more in interest overall.
Will I qualify if I have a poor credit history?
In theory, you can still obtain a buy to let secured loan with a poor credit history – some lenders even specialise in helping customers with low credit scores. As this lending comes with collateral, your lender will be more concerned with affordability than credit scores. You’ll still need to explain any significant problems in your past, though, and a low credit score may lead to a higher interest rate.
Ultimately, lenders understand these sorts of problems and as we can’t all be the worlds mega rich, these sorts of difficulties can raise their head at any time. As long as there is a good explanation, we can usually find a suitable option for you.
Other specialist products, such as secured loans for self-employed borrowers are also available.