Direct answer
Business-purpose second charges: when they are regulated and when they are not
A loan to an individual secured on their home is a regulated mortgage contract whatever it is for. A second charge is excluded under article 61A of the Regulated Activities Order only if the credit exceeds £25,000, the charge ranks behind another mortgage, and the borrower enters into it wholly or predominantly for a business they carry on or intend to carry on.124
A signed borrower declaration creates a presumption of business purpose. The presumption falls away if the lender, or anyone acting for the lender in connection with the agreement, knows or has reasonable cause to suspect the purpose is not business.2
Key points
- Purpose is not part of the regulated mortgage definition. A sole trader's business loan on their home is regulated unless an exclusion applies.
- The second charge business loan exclusion needs credit over £25,000, a second-ranking charge and a business purpose.
- A broker fee in the credit may be left out when testing the £25,000 floor.
- The declaration presumption fails if anyone acting for the lender knows or suspects the purpose is not business.
- At £25,000 or less, a business-purpose second charge on the home stays regulated.
01
Purpose is not the starting point
A regulated mortgage contract is credit to an individual or trustees, secured on land in the UK, where at least 40% of the land is used, or intended to be used, as or in connection with a dwelling. A second or later charge can qualify as easily as a first.14
The FCA's perimeter guidance makes the point directly: the definition contains no reference to the purpose of the loan. If a lender makes a business loan to a sole trader, or a partnership in England and Wales, secured on the borrower's home, it is a regulated mortgage contract unless an exclusion applies.4
A loan to a limited company that is not borrowing as a trustee falls outside the definition altogether, because the borrower is not an individual.4
02
The second charge business loan exclusion
Article 61A excludes a second charge business loan. On top of the usual regulated mortgage conditions, three things must all be true.2
| Condition | In practice |
|---|---|
| The credit exceeds £25,000 | The FCA says a broker fee included in the credit may be excluded when testing the floor |
| The mortgage ranks behind one or more other mortgages on the land | A true second (or later) charge, not a replacement first charge |
| The borrower enters into it wholly or predominantly for a business they carry on or intend to carry on | A real trading purpose, evidenced, not a label |
03
The declaration, and when it stops protecting you
If the agreement includes a declaration by the borrower, the loan is presumed to be for business purposes. The declaration must state that the agreement is entered into wholly or predominantly for business, that the borrower understands they will not have the protections of a regulated mortgage contract, and that they should seek independent legal advice if they are in doubt.2
The presumption does not apply if the lender, or any person who has acted on the lender's behalf in connection with entering into the agreement, knows or has reasonable cause to suspect that the purpose is not wholly or predominantly business. A broker who hears that most of the money is going on a kitchen and a car cannot rely on the client's signature.2
04
If it is not a regulated mortgage, is it consumer credit?
Not if the same conditions are met. Article 60C exempts a credit agreement where the credit exceeds £25,000 and the agreement is entered into wholly or predominantly for business purposes, with the same declaration presumption and the same knows-or-suspects override. A regulated mortgage contract is also never a regulated credit agreement.3
05
Second charges on let property
Article 61A also treats some buy-to-let borrowing as business-purpose: where the borrower bought the property to let and it has never been occupied by them or a related person, or where they already own other let property. A consumer buy-to-let agreement, one not entered into for business, sits under the separate consumer buy-to-let regime.24
06
Which regime applies
A quick reference for an individual borrower with the charge on their home. It is not a substitute for checking the facts of the case.
| Purpose and amount | Likely position |
|---|---|
| Business, over £25,000, valid declaration, no reason to suspect otherwise | Excluded under article 61A and exempt under article 60C |
| Business, £25,000 or less | Regulated mortgage contract |
| Mainly personal, any amount | Regulated mortgage contract |
| Borrower is a limited company, not as trustee | Outside the regulated mortgage definition |
Common questions
Questions answered
Is a second charge for business purposes regulated?
It depends. A loan to an individual secured on their home is regulated whatever the purpose, unless an exclusion applies. Article 61A excludes a second charge business loan where the credit exceeds £25,000, the charge ranks behind another mortgage, and the borrower enters into it wholly or predominantly for business.
Does the 40% occupancy test matter for a business-purpose second charge?
The second charge business loan exclusion applies to loans that otherwise meet the regulated mortgage definition, including the 40% dwelling test, so it can apply when the security is the borrower's home. The 40% test matters more for the separate investment property loan exclusion.
Can a borrower declaration be relied on?
Only if neither the lender nor anyone acting for it in connection with the agreement knows or has reasonable cause to suspect the purpose is not business. The presumption falls away if they do.
Is a business second charge of £20,000 regulated?
If the borrower is an individual and the charge is on their home, yes. The article 61A second charge business loan exclusion needs credit exceeding £25,000.
Evidence
Sources and review
Material factual claims were checked against the primary and public-interest sources below. Product criteria and the wider market can change after the review date.
- 1The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, article 61
legislation.gov.uk. The definition of a regulated mortgage contract, including the 40% dwelling test.
- 2The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, article 61A
legislation.gov.uk. The second charge business loan exclusion, the declaration presumption and its override, and buy-to-let business purpose.
- 3The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, article 60C
legislation.gov.uk. The consumer credit exemption for business lending over £25,000.
- 4PERG 4: Guidance on regulated activities connected with mortgages
Financial Conduct Authority Handbook. Purpose is not part of the definition, sole trader loans on the home, broker fees and the £25,000 floor, and consumer buy-to-let.
Published 1 November 2026. Last reviewed 1 November 2026.