Second Home Mortgage
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Second Home Mortgage
Michael Bowdidge talks to us about a second home mortgage.
What is a second home mortgage? Can I get a second mortgage?
Yes, you can. The term ‘second home mortgage’ could have a couple of different connotations, and mean a couple of different things.
For the purpose of today, we’re assuming people are asking whether they can take out a second mortgage to buy an additional home. Just like with a regular mortgage, it all boils down to affordability and your ability to pay it back.
Is there a specific type of mortgage for a second home? What types of second home mortgages are there?
There are specific mortgages depending on the circumstances. For example, somebody might want to buy a second home to be used by them, as a holiday home or weekend home, or a flat in the city for work. There are specific mortgages for those.
It’s more about lenders. Lenders often have specific criteria confirming someone can take out a mortgage for a second property, provided it meets their affordability test. It really boils down to finding the right lender.
Can you have two residential mortgages at the same time?
Yes, you can certainly have two mortgages, if that’s affordable to you. A lender would generally put a cap on that second mortgage. On a standard residential mortgage you might just put down a 5% or a 10% deposit.
Then, if you then go to buy a second property, they’ll want you to put it in at least 20% or 25% as a deposit. They can be a little bit more stringent on how much you can borrow.
Is there a stricter loan criteria on a second home mortgage?
Yes – as per the previous question, you may only be able to borrow up to 80% Loan to Value.. There can also be stricter stress testing around income, especially if you have a mortgage already.
If your mortgage payment was £1,000 a month on your main home and you’re buying a second property, the lender for your new mortgage is going to make sure you can afford both, even if costs go up a bit.
They’ll also look at additional running costs. With a second home, lenders will assume you’d have to pay the council tax and home insurance at least. There are costs they factor in – you need to be able to meet both to secure a second home mortgage.
What is the typical mortgage rate for a second home?
It is priced exactly the same. There’s no second home mortgage rate – it’s just whether a lender will do them. They’re going to be the same as you’re offered for your first home.
How much is the deposit for a second home? Can I buy my second house with a 10% deposit?
It’s one of those things which is very specific to the lender. If there are five different providers and they’ll all let you buy a second home, some will say you need a 10% deposit, some might require 20% deposit or more.
Those two things impact the interest rate they’ll offer you. Whilst you absolutely can do it with as little as a 10% deposit, you may find it’s more affordable or more cost effective to put down more.
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How much can you borrow on a second mortgage in the UK?
Your income is one factor that’s going to determine how much you can borrow. That number then goes down as the lender factors in the running costs to that second home: things like your home insurance and extra council tax, as well as any other debts you have in the background. It’s very similar to how general mortgage affordability is calculated.
Could I get a joint second mortgage? Is that possible?
You certainly can. It also doesn’t have to be with the person who’s on your first mortgage. You could have a mortgage as a couple and then buy a second home with a brother, sister or a friend, if that’s what you wanted to do.
Can I get a mortgage to buy a third property?
It all boils down to what you’re doing with it. Once you’ve got a home, you’re going to live there. The second one might have a specific purpose – for work or as a holiday home.
Once we get to property number three, the question will be what’s it going to be used for. Are you going to rent it out? If so, it would be a Buy to Let mortgage. If it’s affordable on your income, with all those running costs, then yes, it would be possible.
What are the extra costs of buying a second home?
There is stamp duty, which we will cover in a moment, and you’ve got legal costs. I’ve touched on the extra running costs for that additional home. Other things to think about might be fees to arrange that mortgage. There can be some costs there.
How much stamp duty would I pay on a second home?
It’s hard to be specific, but there’s a fantastic calculator we use all the time, which is the SDLT – which stands for Stamp Duty Land Tax – calculator on gov.uk.
You put in the price of the second home and it will tell you what the stamp duty charge is. It’s a tiered system depending on the value of the property. The value will determine how much stamp duty you pay.
There will certainly be some additional stamp duty for buying a second property.
What are the pros and cons of buying a second home in the UK?
It can be very beneficial in the long run. In the UK, capital growth on homes is strong. There are lots of statistics to show that houses almost double in value every 10 years.
There are obviously periods where prices go up and down, but over a period of time, generally you’ll see quite good capital increase. If you’ve got a mortgage and you’re paying that off, your debt is going down, and if the value of the home is going up, you’re going to gain. We see lots of people do this as a really good investment. In the future it could support them for their pensions.
Also, since COVID, we’ve seen a huge increase in the number of people buying a second property. Places like Cornwall, Devon, Suffolk and Norfolk saw a huge increase in people buying a second property because people weren’t able to travel abroad.
There was a real boom in the people using a UK-based holiday home. The prices of those properties went up – so it can be a great investment and obviously also gives you a place to go and stay.
How do I get a mortgage for a second home and how can a mortgage broker help?
I’m always going to say that a mortgage brokerage is the place to go. You do really want a specialist broker in this field – because while you can go direct to a lender and ask for a second property, everything will depend on what that particular lender says.
Even certain high street banks wouldn’t offer second home mortgages. A broker can help you identify right from the offset what you could afford as a second property and how much deposit you’re going to need. We help you work out those extra costs like stamp duty.
The first port of call should always be a broker, because we can work out how to get what you need, and then do the applications with the lenders for you.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.