How the borrowing works
The secured loan is a second charge mortgage on your home, repaid monthly alongside your existing mortgage. The amount available depends on your equity, the lender's combined loan to value limit and, above all, whether the repayments are affordable from your income.
Lenders assess affordability on your existing income and spending. Most will not count rent from a property you have not yet bought.
What the buy-to-let lender will check
The buy-to-let lender assesses the rental property and the expected rent, and will ask where the deposit has come from. A borrowed deposit is acceptable to some lenders and not to others. Confirm this before taking the secured loan, or you may hold a new debt with no purchase to fund.
Expect the buy-to-let lender to include the secured loan repayment in its own affordability assessment.
Costs and tax
Two loans mean two sets of fees, two interest rates and potentially two early repayment charges. Stamp duty surcharges apply to additional properties, and rental income is taxable. Habitat Loans does not give tax advice; speak to an accountant before you commit.
Consider what happens if the rental property is empty for several months, if a tenant stops paying or if interest rates rise on either loan.
Alternatives to consider
A remortgage of your home to release the deposit, a further advance from your existing lender or saving for longer may suit some households better. Ask the broker to compare the options, including the total cost of each over the period you expect to hold the rental property.
Before you commit
- Confirm with the buy-to-let lender that a borrowed deposit is acceptable.
- Check that you could meet both sets of repayments with no rental income for a period.
- Take tax advice on the purchase and the rental income.
- Compare the total cost with a remortgage or further advance.