Second home mortgages guide
Have you ever thought about getting a second mortgage or wondered how and what it entails? Well, this is the ultimate guide to second home mortgages, where we aim to answer your questions about second-home mortgages and more!
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You can get a second mortgage if you already own a home and want to purchase a second one. Second home mortgages are generally used for holiday homes, properties used as weekday work bases or weekend retreats, or residences that will help out a family member.
Your reason for getting a second home mortgage is important, as it determines the type of mortgage you should get.
The requirements for obtaining a second mortgage are mostly the same as those for a first mortgage, except for stricter affordability requirements. Lenders classify buyers with two or more mortgages in a much higher risk bracket.
A second home mortgage is a loan you can take out to invest in another property.
The type of mortgage you need for a second home
There are various types of mortgages, even within the home mortgage category. If you plan on using your second property to help a relative climb the property ladder or use it as a second-family home, you will need to get a second residential mortgage.
Can you get a second mortgage to buy a second property?
Your ability to obtain a second property mortgage mostly depends on your financial situation. Lenders are more likely to approve you if you have a substantial disposable income or can take on a second mortgage since your existing mortgage is almost paid off.
The less risk you are, the more likely you will get approved. Lenders will assess and analyze your track record and see if you make your current mortgage repayments on time. They will also run some affordability checks to see if you can comfortably afford to pay for two mortgages.
Having two mortgages means you will have two sets of monthly mortgage repayments, and the lender wants to be sure that you can manage both before approving you or carrying anything out.
Like a first mortgage, a second property mortgage’s affordability requirements are based on income and expenses. The only difference is that the criteria for a second mortgage are often a lot harder to meet. This is why it is crucial that your finances are in order and that you have substantial evidence showing you can afford this mortgage.
To find out how much you could borrow and what your monthly payments would probably be, utilize a mortgage calculator. Calculators like this can give you an idea of the financial commitment to expect with your second mortgage.
You need to make it clear from the start which property will be your second or holiday home and which will be your primary residence.
If you take out a residential mortgage, you can do nothing but live in that house or use it yourself, and you may not rent the property, as this goes against the terms and conditions.
Types of mortgages for second homes
You must decide whether you want a fixed-rate or variable-rate mortgage, just like any other mortgage.
Although the initial cost of a variable rate may be lower, if rates rise, you may ultimately pay more overall than if you had chosen a fixed rate. If you put it at a fixed rate, you will always know the exact amount of your repayments.
When evaluating offers, you should consider mortgage costs by examining the whole expense over the deal’s duration. A package with no costs may have a higher interest rate, which could result in you paying more overall than one with fees. So always compare prices.
It can be worthwhile to hold off on getting a second mortgage until you’ve already paid off your present one or a larger portion of it. This can increase your chances of being approved and lift some financial strain off your shoulders.
The following are some of the different mortgages available for second homes:
Buy-to-let mortgage
You’ll undoubtedly require a buy-to-let mortgage if you intend to purchase a second house to rent it out. However, a holiday-let mortgage may be preferable to a traditional buy-to-let if the property is a holiday home.
And if you intend to use the property mainly as a vacation home for your family and only sometimes rent it out, you will typically require a commercial mortgage.
Second residential mortgage
With a second residential mortgage, most lenders stipulate that the property must be used only for personal purposes, such as a second home or a property that the buyer can use during the week to commute to work.
Some lenders may allow you to use this second home to provide accommodation for your dependents, while some have strict rules against this. Always make sure you have gone through the regulations and guidelines laid out by your specific lender.
Most lenders will let you use your second property as a vacation home, depending on your chosen mortgage provider. You will need a commercial buy-to-let mortgage if you want to let out your property for specific periods.
Overseas mortgage
Although some high street banks offer foreign mortgage services, most won’t let you use one to purchase a second property abroad. Therefore, you might need to speak with a specialized lender to buy a second property abroad.
How much will you need for a second mortgage?
You typically need a deposit of at least 10% to 15% when purchasing a second residential property. However, you will have a better chance of getting the best deals if you can afford to put more down for your deposit.
You should also consider the additional expenses of purchasing a second property, such as second home insurance and additional rate stamp duty.
How to get a second mortgage
The process of getting a residential mortgage for a second property is fairly similar to the process of applying for your standard residential mortgage. Once you know what mortgage you require, you must find a building society or bank that will be happy to loan you the money.
You’ll want to search around to find the greatest offer, just like you would with any mortgage. It is highly recommended that you speak to a specialist lender and mortgage broker to get help finding the best rates and lender for you.
You will be required to answer several questions on how you intend to use your second property so that the lender can be confident you are applying for the correct product. You will also need to meet the stringent affordability criteria.
If you are still working on paying off your first mortgage, the lenders will assess all of these repayments. It is also isn’t likely that you’ll be approved if the lender can see that you won’t be able to afford all of the repayments.
Most lenders need at least 15% of the purchase price as a deposit for a second home mortgage, making it more probable that the deposit will be bigger than it was for your first-home mortgage.
If you want a buy-to-let mortgage, you will likely need a deposit of around 25%, and a holiday-let mortgage can require a deposit of as high as 30%.
Second home Stamp Duty, which is an additional 3% on top of what you’d pay for a first home, is another expense to take into account.
Second-home mortgage interest rates are often higher, making this borrowing more expensive.
When applying for a second home mortgage, always be transparent with the lenders and consider checking in with your current provider, as they may give you a better offer for your second mortgage.
Some lenders have specials for their existing customers, making your application process much smoother.
How to get it:
- Save money for your deposit
- Check your credit report
- Calculate how much you need to borrow and can afford to borrow
- Get a mortgage agreement in principle
- Organize all your paperwork and documentation
- Find the correct mortgage term and type
What to consider when looking for a second home mortgage?
Stamp duty
Second home buyers in Scotland and Wales pay an additional 4% in Stamp Duty or LBTT, compared to an extra 3% in England and Northern Ireland.
The cost of the property you purchase will determine the total amount of stamp duty that you must pay out.
Interest rates
Interest rates are higher for second-home mortgages. However, the higher the deposit you pay, the better your rates can be. You will also need to decide on the interest rate you’d like.
Take the length of your mortgage into consideration, 25 years is the standard, but if you can pay it off in less time, you will pay less interest.
Affordability
You must keep the large deposit in mind and add the stamp duty. You will also need to pay lawyers’ and surveyors’ fees. So make sure you can afford every aspect of the mortgage from start to finish.
It does not matter how big your deposit is; you must prove you can easily afford the monthly repayments, your primary mortgage repayments, and all your other expenses.
The lender will also evaluate how much rent you can charge if you are purchasing real estate as an investment when determining how much you can afford.
How many mortgages you can have
The number of residential mortgages you can have in the UK is technically unlimited, but lenders are sceptical of people using them to buy properties they intend to rent.
As a result, lenders frequently only permit two residential mortgages: one for your primary dwelling and one for a second home or an additional family member. And remember, you will need to declare which of your homes is your primary residence.
Lenders also want good reasoning as to why you want an additional property, as this helps them ensure that they are lending you the money for the intended purpose and that you are not taking out a mortgage with plans to use the house as a rental property.
Opt for a joint mortgage
Most lenders have mortgage products that are available to multiple people. You may want to share the mortgage with the person you will share your holiday home with, or perhaps you and a business partner want to invest in a property together.
The mortgage does not have to fall onto one person’s shoulders. You can get a joint mortgage and share the load and responsibility, or a joint buy-to-let mortgage, a joint residential mortgage, a joint bridging loan, and more.
Most mortgage lenders will only offer a second property joint mortgage to two people, and some lenders will allow a joint mortgage between four people at most. A joint mortgage will not affect how much deposit you must pay or the duration.
Pros and cons of a second home mortgage
Second residential mortgages have pros and cons, and it is best to make yourself aware of these before making a final decision.
Pros
- A second mortgage is likely to cost you less than a second charge or secured loan mortgage would.
- A holiday home mortgage or second mortgage is separate from your current mortgage, so your primary home will not be at risk.
- If you sell the second house at a later stage, you could profit from any gain in value.
Cons
- You will be required to pay off two mortgages at once
- You will need to pay a second deposit
- There are stricter affordability checks during the application process.
- It does put your current house at indirect risk
- Extra maintenance fees
Helpful tips for applying:
The following are some great tips when it comes to applying for your second home mortgage:
- Get all your documents ready and gather enough evidence to show that you can afford to pay for two mortgages
- Three months before applying for a second mortgage, cut back on spending, bills, and subscriptions
- Shop around for the best mortgage provider
- Try to pay off your primary property mortgage early
- Compare second home mortgage deals
- Get help from a mortgage broker
Final thoughts on second home mortgages
Second home mortgages can be lifesavers, and you can easily get one when you need it. If you have been considering a second home mortgage, this guide will hopefully make your decision process much easier.
Be sure to get prepared and do enough research. You want to find the right deal and be sure that you are committing to the right lender and mortgage type – it will be years of commitment!
Contact us below today for your second home mortgage advice and get started with your new application.