When I look at the new business board in my office, apart from giving me a snapshot of fresh business, it also allows me to see the trends in lending and one of the most significant since the start of the year has been the rise of second charge lending in the buy-to-let sector. Now this might not seem particularly earth shattering, and I believe it provides brokers with another opportunity to provide a much needed service. With property market sentiment becoming particularly bullish, buy-to-let landlords are also waking up to the possibilities of having access to finance in a more buoyant climate.
With prices increasing, landlords who had borrowed to the maximum only 12 to 18 months ago are now finding that they have extra equity, which they can call on via the second charge route. Second charge buy-to-let is an ideal vehicle to provide immediate finance, because not only does it share common DNA with its residential lending cousin which makes the process cleaner and faster than a remortgage, but also because on buy-to-let the usual consideration period does not apply, landlords can have their money within a much shorter period. Although headline rates are not going to set the world on fire, if the client has a mortgage on a property at the historically low rates we have seen, then a buy to let second charge is not going to be too much of an added burden.
In addition, the opportunities afforded by a new loan also mean that the extra costs for refurbishment, for example, can be more than offset by making improvements to the property thereby increasing its value and attracting a higher rental price. As far as flexibility goes, because borrowing is based on the rental coverage over the mortgage payment it can also be topped up by personal residual income.
So this just keeps getting better for the client when you take into account the opportunities second charge affords to raise deposit funds for further purchases. With the inherent speed of delivery as part of the package, landlords can be sure to have the funding available when they need it to take advantage of property deals.
More lenders, among them Shawbrook, Masthaven, Step One and Blemain, are making this a vibrant area for brokers. However, many brokers involved in buy-to-let might not have considered second charge borrowing for clients before, some because they were genuinely unaware, others because they might have outdated notions of the effectiveness of second charge lending However, it is time to evaluate a genuinely useful tool and I would thoroughly recommend that you take a look.
Bradley Moore is director of second charge at Brightstar Financial