Second Home Mortgage
Chris Needham explains how mortgages work on a second home.
What is a second home mortgage? Can I get a second mortgage?
We’ve helped clients in a number of different situations and scenarios this year to buy a second home.
One client had a home that they lived in, but wanted to buy a small property for his elderly parents. So while it was in fact a second home for his parents, the client himself would have two mortgages.
We’ve had other examples of clients buying a home on the coast to use at weekends and through the summer. Effectively it’s a holiday home, but not to rent out. It’s just for them to use.
Another client needed a small flat near his office as he worked three hours away from home. He wanted a small property to stay in four days a week rather than travel each day.
So a second home is not a property you’re buying to rent out. It’s a property you’re buying. You’re going to own it alongside another property for your family’s personal use.
Is there a specific type of mortgage for a second home? What types of second home mortgages are there?
It does vary by lender. Some lenders don’t want you to have two residential mortgages, whereas other lenders are a lot more pragmatic and accept the idea. It just depends on the use case for that property.
It also comes down to whether the lender thinks that you can afford both the mortgage payments and the running costs of both properties – that’s really important. It’s not just looking at how much you can borrow. It’s whether the lender believes that you can cover the expense of having two properties.
In terms of the mortgage types, there are the usual types of repayment mortgage, and it may be possible to do an interest only mortgage. We can do fixed rates and we can do tracker rates – it’s all about understanding the circumstances and why you need this second property. Then we can evaluate what schemes are available from what lenders.
Can you have two residential mortgages at the same time?
Yes. If you live in a house and decide you want a small apartment by the sea for you and your family to use at weekends, it’s certainly possible to arrange a second residential mortgage.
It does always come down to affordability. Does the lender think you can afford to meet both of the payments? Obviously, because it’s a residential mortgage on the second home, you can’t rent it out – so you need to be able to afford it from your employed or self-employed income. But, yes, it’s certainly possible.
Are there stricter criteria on a second home mortgage?
Yes. It’s all about affordability. Can you afford to support both mortgage payments and the running costs of both properties? That’s what the lender will be looking at to make sure that it’s all affordable.
How much is the deposit for a second home? Can I buy my second house with a 10% deposit?
Yes, that’s certainly possible. I’ve been doing some research around that because we will be putting in an application tomorrow for a client to buy a second home. He will be only using a 10% deposit, so that’s certainly possible.
Obviously, the larger the deposit, the less risk there is in it for a lender. A 10% deposit isn’t necessarily ideal – it will limit your options, but it is certainly possible.
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How much can you borrow on a second mortgage in the UK?
That varies by every single lender. Each one has a different affordability calculation and they will assess it on an individual basis. Typically, if you’ve already got one residential mortgage, a lender obviously treats that as a commitment.
They will factor that in when looking at how much they’ll lend you on the second property. It also takes into account the running costs of both properties and how much time you’re going to spend there.
Get in touch with a mortgage advisor so that we can understand the situation and what you’re looking to do, then we can work out which lender will lend the right amount.
What are the extra costs of buying a second home?
When you’re looking to buy your second property you’ll obviously need a deposit. There’ll then be legal costs for a solicitor to get involved with the legal transaction of taking on the property.
You may want to arrange a survey on the property to make sure that it’s in good condition, and then of course there will be stamp duty costs. Stamp duty is probably where most clients come unstuck. If you already own one property and are buying an additional one, the stamp duty can be quite expensive because you have to pay a surcharge for a second home.
How much stamp duty would I pay on a second home?
The rules changed in April 2016, such that if you were buying a second or an additional property there would be a 3% surcharge on top of the normal amount of stamp duty.
So if you’re looking at investing in a second property, it’s worth taking that advice right at the start. Make sure that you’ve got the funds for that stamp duty surcharge.
What are the pros and cons of buying a second home in the UK?
It depends, obviously, why you’re buying it. In the first example I gave, where the client was buying a second home for his parents to live in, that was more out of necessity rather than a lifestyle choice.
But there’s many different ways that a second home comes onto people’s agendas. It can always be a good investment, in financial terms. Helping your parents out is a good investment as well, so that there’s many different advantages.
On the downside, there are the additional costs. We’ve already talked about the stamp duty when you buy the property. There’s also likely to be tax implications when you come to sell it, based on the profit you’ve made – so talk to your mortgage advisor right at the start to understand those costs before you purchase.
How do I get a mortgage for a second home? How can a mortgage broker help?
It wouldn’t be a proper podcast if it didn’t recommend that you speak to a mortgage adviser right at the start. Make sure that you’re prepared and you understand how much you can borrow and how much that second mortgage is likely to cost.
Look at the other factors lenders will take into account when assessing the application, so you know what you’re doing. Talk to an advisor right at the start of the process, rather than when you’ve just had your offer accepted.
Your home may be repossessed if you do not keep up repayments on your mortgage.