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Second home mortgages explained

A second home mortgage is  a mortgage for buying a second home – not to be confused with getting a remortgage or second charge mortgage.

If you are already paying off a mortgage but wish to buy another home, chances are, you will need to take out a second home mortgage. All banks, building societies and any other mortgage providers will view your current mortgage deal as paying for your main home, or main residence.

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If you buy another home, then your mortgage provider will view that as your second home should you wish to apply for a mortgage.

Even if you wish to live in the second home or rent it out to somebody else, your application will be treated as a second home mortgage because you already have a mortgage that you are currently paying.

You may want to first check with your current mortgage provider if they will be willing to offer you a second home mortgage, as not all mortgage providers offer them. Of all the mortgage providers offering second home mortgages, it is very likely you will be faced with stricter criteria in the application.

Generally speaking, in order to get a second home mortgage, you will usually need a larger deposit than what you might have been allowed to have for your first mortgage. On top of this, the second home mortgage deals are likely to have higher interest rates than standard mortgage deals.

You will go through all the same financial assessments as usual, but the mortgage provider will be extra cautious about lending to you, as it will be more expensive for you to pay two mortgage repayments every month.

Whether you want a second home mortgage as part of a property investment, to buy to let, as a new home to live in, or as a holiday home, there will probably be more obstacles than when you tried to get your first mortgage.

Buying a second property with a mortgage

Although it can be more difficult to find and get approved for a mortgage for a second property, you can use a second home mortgage for a range of purposes.

You could take out a second home mortgage for a second home in the UK that you will live in. When you buy your second property you will still come across the same obstacles, even if you intend to use the new one as your main or primary residence. Mortgage lenders want to see you can afford both homes.

If you are buying a second property that will become your main home, make sure to inform HM Revenue and Customs (HMRC) first. This is to ensure you avoid paying Capital Gains Tax (CGT) should you wish to sell the property later.

CGT is a tax that you pay when selling most things you own worth over £6,000, apart from your car.  It also applies property, but only on the property that isn’t your ‘main home’.

You could also get a mortgage to buy a second property to use as a holiday home. If the property is abroad then mortgage lenders are likely to be stricter with their terms. This is because many mortgage lenders see an added risk caused by potentially fluctuating currency prices and the unfamiliar property markets and laws.

Whether the holiday home is in the UK or elsewhere, you will need to indicate if you plan to rent out the property or use it for yourself, as this will determine how much you are likely to need to pay the mortgage repayments each month.

This rule similarly applies if you are taking out a second home mortgage for a buy to let investment. You could be given more favourable conditions if you plan to rent out the property, as you won’t need as much of your own income to cover the monthly mortgage repayments. The mortgage provider will also take your likely rental income into consideration.

How do I get a second home mortgage?

A second home mortgage is likely to have tougher rules imposed on the application because you will already be paying back your first mortgage.

The first thing to check is if your credit score has changed since taking out your first mortgage. Any missed payments or additional debts taken on are likely to reduce your chances of being approved for a second home mortgage.

If you don’t know your credit score, *use our free comparison table to take a look at your full credit report and financial history*.

Secondly, ensure you have enough money in the bank to handle the cost of buying a second property. Many second home mortgages require at least a 25% deposit, and you may need even more than that if your current income won’t cover both mortgages at the same time.

In addition to this, your income will be even more important in the application for a second home mortgage. This is because interest rates are usually higher when getting a mortgage to buy a second property. That means your monthly mortgage repayments could be higher than what you are currently paying on your first mortgage.

It should also go without saying that your existing mortgage repayments will form part of your financial assessment when applying for a second home mortgage. If you have only enough income to manage paying for those mortgage repayments then you most likely won’t be approved for a second home mortgage.

As with any other mortgage, you will need to work out if you want a fixed rate or variable deal. Assess if you can afford the risk of taking a variable rate mortgage, or if the fixed deal will work out cheaper even after it ends. It’s also important to remember that you will still have to pay all the same fees of buying a house, including the mortgage arrangement fee.

Finally, you will have fewer options on the mortgage market if you are looking for a second home mortgage. Not all lenders offer them, and the range is not as varied as it usually is when applying for a first mortgage.

Shopping around the second home mortgage market is going to have its limits, so if you can’t find the right deal for you, it’s time to go back to the drawing board and see what you can do.

For example, you could consider remortgaging and seeing if you can get a cheaper deal on your monthly mortgage repayments. Any savings you make or extra cash raised in equity could go towards boosting your deposit when buying a second property.

Simply waiting a little longer to repay more of your current mortgage will help you out too. If there’s less debt left on your current mortgage, then you could get a better deal on a second home mortgage.


Read more…

  • Home Buying Costs Buying a home is the single biggest financial commitment you’re likely to make
  • Rent To Buy What is Rent to Buy? Read our guide to learn if Rent to Buy is right for you
  • First Time Buyer Guide If you’re looking for your first home the mortgage market can be daunting
  • How to spring-clean your finances – Your personal finances are no different to your home, garden or garage – they need a spring clean from time to time. Find out how switching your bank account, mortgage and credit card could save you a few hundred pounds.

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Compare mortgages if you're remortgaging, a first-time buyer, looking for a buy-to-let or moving home

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