Whilst the second charge lending space has become more mainstream over the last 5 years, with rates and terms often more akin to High Street first mortgages, it is still possible to find some very niche specialist lending rarely found within the mainstream lenders. Whilst niche, there are some great opportunities for brokers to solve their client’s borrowing needs, if they know where to look.
There are a few scenarios where the choices can be very limited, for instance CBTL cases, and regular BTL cases where the rental income does not support the additional borrowing within the ICR% (interest coverage ratio) demanded by the mainstream, loans for bankruptcy and IVA settlements and finally, semi commercial cases. Whilst the conundrum of a BTL case not fitting ICR might be seen as a regular occurrence by many brokers, the other scenarios are likely less frequent, but they are out there, and as we see, much more so than might be expected. Identifying with and welcoming these cases can provide brokers with much added business and many satisfied customers.
A specialist BTL or CBTL second is useful when a borrower is already at the top end of ICR, and they wish to raise further capital. Whilst the ‘top slicing’ approach, using other income sources to support a BTL refi is possible elsewhere, when it comes to second charges the overall less restrictive approach to ICR can immediately open more opportunity to capital raise.
What if your client is looking to raise finance against a semi commercial property? While many will have split titles for their respective residential and commercial elements, there are many that are held on one title. Refinancing or raising capital on these can be more difficult, with rates for smaller commercial mortgages typically higher than the mainstream residential space, a specialist lender first or second mortgage may well be the best approach.
If the semi commercial property is a single title and consists of residential floor space greater than 40% the rules state that the loan will be regulated if the property is owned by an individual and where they or immediate family occupy it. In this case a regulated second mortgage could be the solution but if the property is let out and the occupancy requirements met then a BTL second (or if no other investment properties were owned) a CBTL second could be offered.
Another variation on the theme is where the property is a semi commercial, but the residential element is less than 40%. Depending on the precise occupancy and circumstances any of the aforementioned solutions might be offered. A specialist lender will also be better able to take a view regarding rental cover, where the property is either let or partly let and the nature of any tenancies, whether AST or a lease or licence or even a mix.
A few lenders will also allow a second charge loan to settle an IVA or annul or settle a bankruptcy and this could be a loan secured on either the residential property or other investment properties. Whilst the list of lenders may be limited, if you have a client looking to resolve an insolvency process, a specialist second charge could be just the solution.
Kevin Cooke is managing director of Finsec Limited