Second Home Mortgages

Why might you want a second home?

There are lots of reasons why you might have considered buying a second home:

• If you live in the city, you can enjoy a holiday home in the countryside or on the coast.
• If you live a long distance from your workplace, you can live closer to work during the week to save having to do the daily commute.
• You can have a holiday home as an investment, earning income from offering holiday lets.
• You can add to the household income with a buy-to-let investment.
• A family member may be struggling to get on the property ladder so this is a good way to help them.
• You may want to revamp a second home and then sell it for profit.
• You may want to invest your savings in a second home with the hope of a higher return if the property’s value increases over time.
• A second home can be a good asset to pass on to your children when they’re old enough.

What is a second home mortgage?

When you already own a home, a second home mortgage enables you to buy another home. This residential mortgage is similar to a standard residential mortgage for a main residence although there are stricter lending criteria. You need to pass more stringent affordability checks because having a second home to pay for increases the lender’s risk. You also usually need to pay a higher deposit. As well as that, interest rates tend to be higher for second home mortgages and there are different tax implications.

A second home mortgage isn’t a specific product as such but rather a second residential mortgage to buy a second home. The type of second home mortgage you can apply for depends on your intentions for the property you want to buy. For example, having a holiday home purely to enjoy yourself is different to having a holiday home that you intend to let out as an investment. We’ll explain this in more detail later on.

Second home mortgage versus second charge mortgage

For reference, the term ‘second home mortgage’ is often used interchangeably with ‘second charge mortgage’. However, it’s important to understand that they’re not the same. A second charge mortgage allows you to access the equity that’s built up in your main residence. To do this, a lender places a second charge against your property, with the first charge having been placed by the lender of your original mortgage. This means that the lender for your existing mortgage has priority when it comes to being repaid for any outstanding loan amount. Once that loan has been repaid, the lender that placed the second charge will then be repaid. A second home mortgage, on the other hand, is a completely separate mortgage that’s secured against the new property you’re buying.

Types of second home mortgages

Your plans for your second property determine the type of second home mortgage you need.

A second home to live in

If your second home is to live in, such as during the week to be closer to work or for a family member who wants to get on the property ladder, you need a second residential mortgage. As you’ll be making repayments for your existing mortgage as well as this second mortgage, the lender needs to reduce their risk. They’ll ask for a higher deposit, such as a minimum of 15%, and may charge a higher interest rate as well as higher fees than the ones you’re paying for your existing mortgage.

You wouldn’t be able to rent out the property when you’re not there as this would break your lender’s terms. To rent the property out when it’s empty and earn a bit of extra income, a different type of mortgage is needed.

You should also be aware that an extra stamp duty charge is payable for second homes. We’ll explain this in more detail later on. If you decide to make your second home your main residence, be sure to contact HM Revenue and Customs (HMRC) to check your capital gains tax (CGT) liability.

A holiday home

For a holiday home that you only wish to use yourself, you need a second residential mortgage. However, if you wish to rent it out when you’re not using it, you’ll more than likely need a specialist holiday let mortgage. Some residential lenders do allow occasional holiday lets but you’ll probably be restricted to doing this just a few weeks per year. If you want more flexibility than this time frame, check the lender’s terms for a specialist holiday let mortgage.

To have a second property that’s purely for holiday lets, you need a commercial loan in the form of a holiday let mortgage. If you’re considering renting out via Airbnb, you must get express permission from your lender.

Holiday let mortgages are usually provided on an interest-only basis. This means that you only need to make the interest payments each month and don’t have to repay the mortgage loan until the end of the term. A higher deposit is required for a holiday let mortgage, such as 25–30%.

A rental property

To buy a second property as an investment to rent out, you need a buy-to-let mortgage rather than a residential one. Just like holiday let mortgages, this type of loan requires a higher deposit, such as a minimum of 25% of the property value, with some lenders requiring a much higher amount of 40%. It is also usually taken out on an interest-only basis and tends to have a higher interest rate.

If you want to buy a second home to live in but decide to rent it out in the future, you need to get permission from the lender. Not all lenders will agree to this and those that do may charge you a fee. If you’re already entertaining the idea of renting out your second home in the future, be sure to check the lender’s terms on this before you apply for a residential mortgage to buy the property.

Another option you may be considering is to buy a second home to live in and then rent out your current home. This may be because you’ve been unable to sell it, you want to keep it as an investment or you intend to move back into it at a later date. For this type of arrangement, you need a let-to-buy mortgage.

A second home abroad

You may be dreaming of buying a second home abroad and need a mortgage to do so. This type of mortgage isn’t as easy to find because many UK lenders won’t allow you to buy overseas using a second home mortgage. Specialist lenders, however, offer overseas mortgages and our mortgage brokers will approach the right lenders on your behalf.

The benefits of buying a second home

There are various benefits to owning a second home:

• When buying somewhere that’s closer to your workplace, you can save a considerable amount of time and money that’s normally spent on commuting during the week.
• As a holiday home, you have somewhere to escape to whenever you need a break.
• If using it as a rental property, it’s a great way to top up the household income.
• The property is an asset that you can pass on to your loved ones in the future.
• It should increase in value over time, generating a profit if you decide to sell it.

Considerations before buying a second home

There are also different issues to consider before you buy a second home:

• As a holiday home, you may get fed up with continually going to the same place.
• You have to make monthly repayments for your second home mortgage.
• You need to allow for the extra costs that owning a second home comes with, such as maintaining it and paying the utility bills.
• If you decide to sell it, you may be liable for capital gains tax.
• Should the market turn, the property may decrease in value.

How does a second home mortgage differ from a remortgage?

A second home mortgage is entirely separate from the mortgage on your main residence and is used to buy an additional property. Should you default on the second mortgage, only the additional property would be seized by the lender. A remortgage allows you to access the equity in your existing home rather than taking out an additional mortgage. It increases the mortgage loan on your home and the released equity can then be used as the deposit for your second property. The lender will need to ensure that you can afford the higher monthly repayments when remortgaging your home.

Are you eligible for a second home mortgage?

As applying for a second home mortgage means that you’ll have two mortgages to pay for, you’ll be considered a higher risk for the lender. The affordability checks, therefore, will be stricter than they were for the mortgage on your main residence. You’ll need to be able to show that you can comfortably afford to make the repayments for your second mortgage on top of the repayments for your existing mortgage.

Other affordability criteria will also be considered depending on the type of second home mortgage you need. For example, if you’re buying a property as a rental investment, the anticipated rental income will be taken into account. To ensure that the right checks are carried out, you’ll need to answer questions about why you want a second home mortgage and what you intend to use the property for. As well as the affordability checks, the lender will check your credit rating and a higher deposit will usually be required.

What deposit do you need for a second home mortgage?

Generally, for a second residential mortgage, you’re expected to pay a minimum deposit of 15% of the property’s value. Lenders have different requirements so this amount can differ. For example, some lenders may offer a higher loan-to-value (LTV) ratio, such as 90%. This means that you’d only need to pay a 10% deposit. Other lenders may be more cautious and offer lower LTVs so that you’d need to pay a higher deposit than 15%. The more deposit you can pay, the more deals you’ll be able to choose from and you’ll also be offered better rates.

For a buy-to-let second mortgage, a minimum deposit of 25% is usually required. Again, there are varying requirements depending on the lender and the property you’re buying. For example, a lender may insist on a higher deposit if you’re buying a new-build property, such as 35%. Some lenders have lower LTVs for buy-to-let second mortgages, such as 60%, meaning that you’d need a deposit of 40%. For a holiday let mortgage, a substantial deposit of 30% is usually required.

Interest rates for second home mortgages

Interest rates tend to be higher for second home mortgages than they are for standard mortgages. This is because they increase the risk for lenders. You not only have to repay the second home mortgage but your existing one too. One way to try and benefit from a lower interest rate is to pay a bigger deposit. The rate you pay will also be affected by the type of rate you choose, such as a fixed rate or a variable rate.

What stamp duty is payable for a second home?

When buying a second home, an additional stamp duty charge is levied. In England and Northern Ireland, this stamp duty surcharge is 3%, provided that the property value is over £40,000. For properties valued over £250,000, the stamp duty surcharge is added to the normal rates. Therefore, the stamp duty thresholds when buying a second home are:

• £0–£40,000: 0%
• £40,001–£250,000: 3%
• £250,001–£925,000: 8%
• £925,001–£1.5 million: 13%
• Above £1.5 million: 15%

Use our stamp duty calculator to find out how much stamp duty is payable for your second home. If you decide to use your second home as your main residence, you can claim a refund for the 3% surcharge provided that you sell your original home within 36 months of buying the second one.

When buying a second home in Scotland, an Additional Dwelling Supplement (ADS) of 6% is payable for the Land and Buildings Transaction Tax (LBTT). For a second home in Wales, a higher residential rate of between 4% and 16% is charged for the Land Transaction Tax (LTT).

How can you apply for a second home mortgage?

You can apply for a second home mortgage in the same way as you applied for your existing mortgage. The difference is that you have to meet stricter criteria as there’s more risk involved for the lender.

Our mortgage brokers can discuss your intentions for the second property as well as your financial situation to ascertain how much you can borrow. You need to prove that you can comfortably afford the repayments for your existing mortgage as well as the repayments for the mortgage on your second property. You also need to have a substantial deposit and a good credit rating. If your second property is to be used for rental purposes, you need to provide more information related to this. For example, details on the property’s location and the anticipated rental income.

Located in Kent, London and Edinburgh, our mortgage brokers can guide you on ways to improve your chances for a successful application. They can also advise you on the tax implications and differences when it comes to insurance for a second property.

Get in touch for expert help with a second home mortgage

At Trinity Finance, we deal with specialist lenders offering second home mortgages and have unrestricted access to the market. This means that our expert brokers can compare the best second home mortgage deals available, including those not that are not advertised by lenders to the public. Rather than just checking the rates, a thorough comparison of the fees and terms will be made to ensure that you choose the best one suited to your needs overall. To get started with your second home mortgage application, just give us a call on 01322 907 000. If you prefer, send your details to us by email at info@trinityfinance.co.uk or via our contact form. One of our specialist mortgage brokers will reply to you with more information as quickly as possible.

How to improve your chances of securing a second home mortgage

You can increase your chances of being approved for a second home mortgage by ensuring that both your financial position and credit rating are as strong as possible.

Your financial position

Before applying for a second home mortgage, make sure that you’re in a good financial position. Lenders will factor in your existing mortgage repayments when calculating your affordability for a second mortgage. Therefore, the more disposable income you have, the better. Get as much documentation together as you can to prove that you can afford the monthly repayments for two mortgages. If you have nearly finished paying off your first mortgage, this will put you in a better position. Also, try and save as much deposit as you can. By doing so, you won’t need to borrow as much and you’ll lower the lender’s risk. As a result, you’ll benefit from more deals and ones with better rates.

Your credit rating

You also need to have a good credit history to show your reliability when it comes to repaying debts. Check your credit rating since you took out your existing mortgage. If your credit record shows that you have made late loan payments or missed some out altogether, this will go against you. The same applies if you have recently taken out new lines of credit. If your credit score has reduced since the last time you checked, our mortgage brokers can advise you on different ways to improve it before you apply for a second property loan. For example, you should cancel any unnecessary subscriptions or home shopping accounts a few months before submitting your mortgage application. You should also refrain from applying for new lines of credit a few months beforehand. Otherwise, it shows lenders that you’re unable to manage your finances adequately.

Joint second home mortgages

If you want to buy a second property with another person, you’ll find that most mortgages allow for this. You may want to buy a holiday home with your partner or a friend, for example. Or you may want to buy a second property as an investment with a family member or your business partner. Whatever your reason for wanting to buy with someone else, you can apply for a joint mortgage on your second property. With a joint mortgage, each person will be named on the deeds and be jointly responsible for making the repayments.

You don’t have to live in the property when having a joint mortgage, which makes it a good choice to help a family member get onto the property ladder. Even so, it will count as your second home, which means that you’ll be liable for the stamp duty surcharge.

To be able to help out a family member without being liable for the extra stamp duty, consider a joint borrower sole proprietor (JBSP) mortgage. Whilst you’re both named on the mortgage and are, therefore, both liable for the mortgage repayments, only your family member is named on the deeds. They can enjoy full ownership of the property and, as you’re not named on the deeds, you’re not liable for the second property stamp duty surcharge.

The advantages of a second home mortgage

A second home mortgage offers various advantages:

• It’s entirely separate from the mortgage you have on your current home. As a second home mortgage is secured on the second property, your current home won’t be at risk.
• It allows you to own a second home for convenience, weekends away or holidays.
• You can buy a second property as an investment to earn some additional income.
• You may not have to pay as much council tax for your second property.
• This type of mortgage may be cheaper than an alternative, such as a second charge mortgage.

The disadvantages of a second home mortgage

There are also disadvantages to consider before taking out a second home mortgage:

• The affordability checks are stricter than for standard mortgages.
• You need to pay a higher deposit.
• The interest rates are usually higher than for standard mortgages.
• You have to make repayments for two mortgages at the same time.
• A stamp duty surcharge is payable.

Alternatives to a second home mortgage

Before making a decision as to whether or not a second home mortgage is the best route to take, consider the alternatives. These can include:

Extending your mortgage

You can borrow more on your current mortgage and increase the number of years on your mortgage term. By extending the term, your loan repayments are spread over a longer period, helping to keep your repayment amounts down. Just bear in mind that the interest payable is also extended over the longer term, costing you a lot more overall.

Remortgaging your current home

If you have enough equity in your current home, you can remortgage to release funds to buy your second home. You’ll need to pass the affordability checks for the higher repayment amounts. Also, bear in mind that, unless your current deal is coming to an end, you may have to pay an early repayment charge. Our mortgage brokers can check this for you so that you can weigh up the costs of remortgaging before making a decision.

Getting a bridging loan

This short-term loan is a good way to bridge a financial gap, allowing you to buy your second home before your long-term financial solution is ready. For example, you may have found a property at auction but securing a second home mortgage will take too long compared with the auction’s short completion timescale. A bridging loan provides you with the funds to buy your second home at auction while your mortgage is being processed. Another example is that you may have found an unmortgageable property. A bridging loan enables you to buy it so that you can renovate it into a mortgageable condition. This will boost your property’s value. At that point, if your property is for you to enjoy as a second home, you can refinance to a second home mortgage. If the property is for investment purposes, you can either sell it for profit or refinance to a buy-to-let second mortgage.

Using development finance

To carry out an extensive renovation project, a development loan allows you to buy and renovate your second property. For example, you may want to increase the property’s size and modernise it. Or you may have found a bargain property that’s uninhabitable. Instead of missing out on a good investment opportunity, you can use development finance to buy and completely renovate the property. This type of funding is released in stages throughout your project. This helps to ensure that your development project stays on track and mitigates the risk for you and the lender.

Turn your dream into a reality with a second home mortgage

Whether you’re dreaming of buying a property for weekend getaways, to help a family member get on the property ladder, to be closer to work during the week, to use as a holiday home or to have as a rental investment, we can help you to turn that dream into a reality. Our expert mortgage brokers are here to provide you with impartial advice on second home mortgages as well as the alternatives available if they feel one is better suited to your needs. They will talk over your financial situation with you as well as your reason for wanting a second property. This will ensure that you apply for the right type of second home mortgage and can meet the affordability criteria.

With unrestricted access, our brokers – located throughout Kent, London and Edinburgh – can compare the second home mortgage deals across the market. This will allow you to choose the deal offering the best rate, terms and flexibility for your requirements. They will guide you on how to maximise your chances of having a successful application and ensure that you’ve collated the correct documentation for it. Your dedicated mortgage broker will oversee the entire mortgage process, liaising with you and the lender throughout. That way, you can enjoy a stress-free mortgage experience and look forward to buying your second home.

At Trinity Finance, we can also help with putting financial protection in place for your second home. For example, we can arrange your second home insurance and put mortgage payment protection insurance in place, if required. To get started with your second home mortgage application, just give us a call on 01322 907 000. Alternatively, send an email to us at info@trinityfinance.co.uk or an enquiry via our contact form. One of our mortgage specialists will reply to you as quickly as possible with more details.