Lenders typically more requirements when it comes to mortgage affordability for second homes. With rising housing prices and increasing interest rates, it may be more challenging to access the financing needed to make a purchase. While some may be able to pay cash for their second home, most will need to secure a mortgage loan.

This has led many to ask us: "How much mortgage can I afford for a second home?" The answer to this question depends on several factors, such as income, monthly outgoings, debts, credit history and more. With careful planning and consideration of all such factors as well as all the options available, it's possible to secure an affordable loan that best serves your needs.

What's Considered a Second Home?

A second home is one that you don't use as your primary residence; it’s not the place you live in most of the time. This could be anything from a vacation home to another residence owned and used exclusively by the borrower or their family.

Is It Difficult to Get a Mortgage on a Second Home?

It can be more difficult to get a mortgage on a second home than on a primary residence. This is in part because lenders typically view second homes as higher risk investments.

Why is this the case? Well, if you have one mortgage on your main residence and one on your second home, you’re going to prioritise the payments on the main residence over the second home in the event that you’re struggling to make both payments. This means that the second home mortgage lender faces a greater risk of you defaulting on payments.

To compensate for the extra risk, lenders have to consider your existing mortgage payments when working out your mortgage affordability on a second home. They may also require larger deposits for second homes, charge additional fees and charge higher interest rates and add certain conditions regarding the property.

Fortunately, there are ways to make sure you get the best mortgage available for your situation. Working with a qualified and reputable mortgage broker such as John Charcol gives you the best chance of securing a competitive rate and a deal that suits your circumstances.

What Are the Benefits of Purchasing a Second Home?

There are many benefits to owning a second home and one of the most coveted ones is being able to enjoy more freedom and flexibility. With a second home, you can take weekend getaways more often, let family stay in it for short term holidays or simply use it when you have to work to avoid an unnecessarily long commute. Additionally, owning a second home may also help you build equity over time which you can then sell for a profit.

What Are the Potential Risks of Owning a Second Home?

While buying a second home can be beneficial, there are also potential risks to consider. These include the possibility of unexpected maintenance costs or changes in the market that could lead to the value of your property depreciating over time. Having a contingency fund aside in case of an unforeseen emergency is always recommended, and due diligence when researching the local market can help you make an informed decision.

Are There Specific Rules Around Buying a Second Home?

Yes, there are certain rules and regulations that you need to be aware of when taking out a mortgage for a second home, including the following.

A Second Home Is Not a Buy-to-Let

When you take out a mortgage to buy a property, your intention for that property must be made clear to the lender as it affects the kind of mortgage you need. If you buy a second home you intend to use as a family holiday home, then you’ll require a second home mortgage. If you buy a second property that you intend to rent out and earn income from, then you’ll require a buy-to-let mortgage. If you take out a second home mortgage and decide to start renting it out, you’ll be in violation of your mortgage agreement.

In the event that you buy a second home with the intention of using it as a second home, but later decide you want to let it out, you’ll need ask your lender for consent to let which they don’t have to grant. If they decline your request for consent to let, then you may need to consider remortgaging onto a buy-to-let product.

Your Lender May Allow You to Use Your Second Home as a Short Term Holiday Let

If you have a second home mortgage on your property and decide you’d like to let it out on a short term basis – i.e. for less than 7 days for up to 90 days a year – then you shouldn’t need to change mortgage products or get a specific holiday let mortgage. Make sure you check with your lender about their conditions before you do this.

Stamp Duty Surcharge

You’ll have to pay an extra 3% Stamp Duty Surcharge when you purchase a residential property that’s not your main home, on top of the regular Stamp Duty Land Tax (SDLT). Whether you're buying a new or existing property, it's important to include this additional fee in your budget so you have a realistic total purchase cost. Properties worth less than £40,000 are exempt from the Stamp Duty Surcharge.

You’re not required to pay the 3% extra SDLT if you're buying a property as a replacement for your primary residence that you’re selling at the same time. If you end up buying your new property while still owning your previous one – perhaps because you’ve struggled to sell the previous one – then you’ll be charged the Stamp Duty surcharge on the new property. Fortunately, if you’re able to sell your former home within 3 years, you should be able to apply for a refund on the surcharge.

Tax Rules

If you're buying or selling a second home, it's important to familiarise yourself with the applicable tax rules and regulations. Note that you'll need to pay Council Tax for a second property. However, some local councils may offer discounted rates on this tax, so it's worth checking with them directly to find out what discounts may be available.

When selling a second home, you'll need to pay Capital Gains Tax (CGT) on the profit you make from the sale. How much CGT you have to pay will depend on your income including this profit. You can use our CGT calculator to work out how much CGT you may have to pay on a second home.

Insurance Restrictions

Most standard home insurance policies only permit a maximum of 30 days’ inoccupancy. If you're leaving your home unoccupied for extended periods of time, chances are that you may need to take out additional insurance to have adequate coverage. If you're applying for a mortgage, most lenders will require evidence that you have adequate insurance in place before they'll approve a loan. We can help you arrange suitable second home insurance, simply get in touch with us on 0330 433 2927.

Is a Second Home Mortgage Different from a Primary Home Mortgage?

Second home mortgages are generally similar to primary home mortgages. They’re both regulated by the FCA (Financial Conduct Authority) and they’re suitable for residential properties you don’t intend to let out.

However, the way they’re assessed and the lender requirements are slightly different.

For example, when working out mortgage affordability on second homes, lenders must consider any existing mortgage payments which can impact what you can borrow. Lenders are also more likely to charge higher rates, require larger deposits and have more stringent eligibility requirements for second homes. Additionally, borrowers may face more questions about the intended use of these second properties. We explore these topics in more detail below.

Mortgage Affordability on Second Homes

Your financial situation will be assessed closely when purchasing a second home as you'll likely need to demonstrate the ability to afford 2 mortgages, not just one. Before any lender grants you a mortgage, they’ll take into account your income, current mortgage payments and outgoings, among other factors. They need to make sure you can afford the new mortgage on top of your existing one.

Lenders will use an income multiple like with a main residential mortgage to work out your maximum borrowing. With this figure and the information they have on your monthly mortgage payments and other outgoings, including the potential utility costs of running 2 homes, they’ll then work out your second home mortgage affordability – i.e. what you can afford in mortgage payments on a second home each month.

If you're still wondering, "how much mortgage can I afford for a second home?", our mortgage affordability calculator can help you to understand your maximum borrowing based on your income. Our mortgage repayments calculator will also help you to work out your potential monthly payments.

Deposit Requirements on Second Homes

When considering a second home mortgage, you're typically expected to pay larger deposit than you would for a main residence. Typically, most second home mortgage lenders will require at least 15% in deposit. This means that the maximum LTV (loan-to-value) you can get on a second home mortgage is 85%, compared to the 95% required by most lenders on a standard residential mortgage. Some lenders may even require more in deposit than this, depending on your circumstances and the property.

Mortgage Rates for Second Properties

When considering a second home mortgage, you’ll probably find that the rates are higher than on mortgages for main residences. The kind of rate you can get will vary depending on your circumstances and the lender. If you get a second home mortgage with the same lender, you could receive more favourable terms and go through a more straightforward application process.

The easiest way to secure the best rate on a second property is to let an independent, specialist mortgage broker like John Charcol do all the heavy lifting for you. As we have access to the whole market, you can be sure to get the best deal for your situation.

Can I Remortgage My Primary Residence to Buy a Second Home?

If you own a mortgage-free home or have plenty of equity available, refinancing your primary residence to purchase another home could be an option.

This is often done to secure money for a larger deposit on a second property, which can help you secure a better rate. Nonetheless, you'll have 2 mortgages to pay each month. When you approach a lender about remortgaging to release equity for this purpose, they will consider the cost of running both households and paying both mortgages to see if it’s affordable.

If you’re unsure what the best option is for your situation, speak to one of our mortgage advisers.

Can I Get a Second Home Mortgage for a Family Member?

It’s possible to help a relative get onto the property ladder via a second mortgage if you opt for a joint borrower sole proprietor setup. This is where the relative, for example your child, takes out a mortgage with you, the parent. The child is the sole proprietor of the property but you support the application as a joint borrower, helping them access a bigger mortgage.

Speak to one of our advisers on 0330 433 2927 if this is something you’d like to learn more about.

Can I Rent Out My Second Property as a Holiday Let?

If you're looking to make some extra money from your property, renting it out as a holiday home on a short term basis may be an option. While not all mortgage lenders are open to this idea, some may allow you rent out the property for up to 7 days at a time, up to a total of 90 days a year. To let out your property for longer periods on a holiday let basis, you'll need a holiday let mortgage.

How Can I Ensure I Get the Best Second Home Mortgage Rates?

When searching for a second home mortgage, it's important to understand your own personal financial situation and your intention with the property you're looking to buy. Knowing what kind of deals are available in the current market and shopping around are key steps in securing the best rates.

John Charcol can help you do just that. As independent mortgage brokers, we have access to the whole mortgage market and can help you compare the best deals. We can also guide you through the entire application process and help you work out budgeting when it comes to ongoing payments and other associated costs. With our expertise, you can be sure to secure the best second home mortgage rates available.

If you'd like to be in the best position possible before coming to us, you can also ensure that the following is in order:

  • Your credit history and score is up to date, accurate, and as healthy as possible
  • Your financial documents are in order
  • You have a deposit of at least 15% of the property's value
  • You have proof of identity and address

By having these things in order, you can be sure to get the best second-home mortgage rates possible. Contact us today on 0330 433 2927 to learn more about our services and to find out how we can help you secure a competitive mortgage rate for your new property.

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