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Are you thinking of buying a second home? If yes, then you’ll probably need a second mortgage. They’re not always that different from mortgages for main residences, but what’s available to you will depend on a few factors.
There are many reasons to purchase a second property. Maybe you want to help a relative onto the property ladder, or maybe you crave a much-needed holiday home for you and your family to enjoy. Or, perhaps you want to boost your family’s income with a buy-to-let property. Whatever your motive, you need to make sure that buying a second property is something you really can afford.
Chances are, unless you have the cash savings to buy a second home outright, then you’ll need a mortgage either on your current property or the property you want to purchase. The type of mortgage you’ll need will depend on what kind of property you’re buying and what you intend to use it for.
Your finances come under intense scrutiny from prospective lenders when you buy a second property with a mortgage. That’s why we’ve designed a guide which explains your options.
A second property mortgage isn’t a specific product. Instead, to buy a second home you’ll need to take out a second residential mortgage on that property. It’s a little different if you want to buy a second property as an investment.
Let’s look at some of the common scenarios where a second mortgage would - and wouldn’t - be suitable.
If you wish to buy a holiday home to enjoy with your family and have no plans to rent it out regularly, you should be able to take out a straight-forward, residential mortgage on the second property – sometimes referred to as a second home mortgage. The new lender will want to make sure you can afford both your current mortgage repayments as well as those on a second mortgage. Therefore, you’ll probably need a larger deposit – often a minimum of 15% of the property's value – and you might encounter slightly higher interest rates and fees than on your current residential mortgage, but that’s not always the case. You also have to pay additional Stamp Duty on Second Homes.
Alternatively, those planning to regularly let out a holiday home when it would be otherwise unoccupied need to apply for a specific, holiday home mortgage. Certain building societies and lenders will underwrite these mortgages on a case-by-case basis. If you want to let out your property as an Airbnb you need explicit permission from your lender.
If you plan from the outset to use your second property as a buy-to-let investment, then you should apply for a buy-to-let mortgage, not a second residential one. The rates are usually higher and you’ll have to put down at least a 25% deposit, but they can be interest-only rather than repayment and specifically designed for this purpose.
It’s a little trickier if you buy a second property that you plan to use as a residence, and so take out a residential mortgage, but end up letting it out. You’ll have to obtain permission from your lender and possibly pay an administration fee. Every lender deals with this in a different way and not all of them will give you permission. If you think you’re likely to let the property out in the future, you should check whether the lender will allow this and what the terms and conditions could be.
Alternatively, if you buy a second home to move into and struggle to sell your previous property, you might want to consider converting your residential mortgage on the previous property to a consumer buy-to-let mortgage – sometimes referred to as a let to buy mortgage. These are regulated as standard residential mortgages by the FCA and offer consumer protections to “accidental landlords” who let out their homes out of necessity and not as a business.
It’s a good idea to bear in mind that second home mortgages of this kind, like buy-to-let mortgages, aren't the same as standard residential ones. They often require higher initial deposits and charge higher interest rates, so you'll need to take this into consideration when deciding if it's a financially viable option for you.
Are you looking to purchase a second property purely as an investment opportunity? We already know that you need a buy-to-let mortgage for buy-to-let investments. But what about if you have other investment ideas? Maybe you want to improve or renovate a home then sell it on quickly for a profit. In this situation, you have 2 options.
Bridging loans are useful because you can secure them against property or land that’s unsuitable for a secured loan or mortgage. Let’s say you buy a property that’s not currently mortgageable because it doesn’t have a necessary facility - like a bathroom. You could take out a bridging loan and secure it against this unmortgageable property to cover the cost of installing a bathroom, thereby making the property mortgageable whilst also boosting its value. You could then sell it for a profit. A bridging loan can cover the cost of a single, specific project on a home, or a huge renovation. Bridging loans are short-term loans with relatively high interest rates which allow for greater flexibility with credit score requirements.
If you intend to buy a second property, totally renovate it before selling it for a profit, then a development loan may suit you. Development loans are for people who plan on undertaking big property improvement projects. You present your plan to the lender who, if they agree, release money at different stages of the renovation process. Development loans are normally 12-18 months. They have relatively high interest rates because you’re essentially asking the lender to loan you money based on your ability to successfully renovate a property, not a property that already exists. You’ll also need to provide 30% - 40% of the renovation costs yourself.
Technically, in the UK, you can have as many residential mortgages as you like, but lenders are wary of people using them to buy properties they then rent out. Therefore, lenders often only allow a maximum of 2 residential mortgages – one for your main residence and one for a holiday home or a family member to live in. If you wish to take out a second residential mortgage, you’ll have to declare which of your properties will be your primary residence.
You’ll also need to give a good reason as to why you want to take out a mortgage on a second residential property, e.g. divorce, holiday home, etc. Lenders need to make sure they’re lending money for the purpose you intend - for example, that you’re not taking out a second residential mortgage with plans to earn rental income from the secondary residence.
Most mortgage products are available to more than one person. Maybe you want a mortgage for both you and the person you plan to share a holiday home with, or maybe a business partner wants to invest in a property with you. Whatever the case, the type of mortgage you need won’t change just because there’s more people involved. Instead, you take out a joint version of whichever mortgage you’re after, e.g. a joint residential mortgage, a joint buy-to-let mortgage, a joint bridging loan, a joint development loan etc.
Most lenders will only offer joint mortgages for second properties to 2 people, but some lenders will allow up to 4, especially if you’re taking out a mortgage for an investment property. John Charcol can recommend lenders who offer mortgages to multiple people.
Ultimately, anyone is eligible to apply for a second house mortgage providing they can afford the monthly repayments, meet the minimum deposit and have a decent track record.
Some lenders will have tighter restrictions on who they give second property mortgages to. Our team can put you in touch with specialist lenders who have experience with situations like yours. Call us on 0344 346 3672 to speak with an adviser today.
Second home mortgages don’t have the same qualifying requirements as regular residential mortgages because they come with greater financial risk for the lender. When you apply for a second mortgage, prospective lenders weigh up how much you already pay towards your existing mortgage to make sure you can afford another property. Most lenders require a deposit of at least 15% of the property value and charge higher interest rates.
Generally, a 15% deposit is enough to secure a second property mortgage. However, if you have a larger deposit, you’ll not only find it easier to take out a mortgage as you’ll have more to choose from, you’ll also have access to better rates and possibly be able to have the mortgage on an interest-only basis.
There’s no official age limit for obtaining a second mortgage, however some mortgage lenders set their own age limits. Even if you’re below the maximum age for a mortgage, a lender could use how old you are to determine your mortgage duration. For instance, if you’re 65 and want a second property mortgage, you may have to repay the mortgage within 10 years rather than 30-35 years. This many not be a problem if the mortgage is interest-only but if it’s a repayment then a short term will increase the monthly cost significantly.
Remortgaging your first property to buy a second property can be a smart move if you have enough equity in your first home. Bear in mind that lenders will still want to make sure you can handle the higher remortgage payments on your income.
It’s important to note that if you miss any mortgage repayments on your main residence then that property could be repossessed.
If you’re thinking of buying a second home in England or Wales, either as an investment or as a holiday home, you’ll be required to pay both standard Stamp Duty and an additional 3%. This is because you’ll be buying a second residential property and these come with a Stamp Duty surcharge.
However, you can apply for a Stamp Duty refund if your second home ends up becoming your primary residence and you sell or give away your first property within 3 years of buying your second home.
We explain in more detail in our guide: Stamp Duty on Second Homes.