A second home mortgage is a mortgage for buying a second home - not to be confused with getting a remortgage or second charge mortgage.
Second mortgages are for people who are looking to purchase a second property as a buy-to-let, or a holiday home to rent out.
They might also be coming to the end of making their repayments on the first mortgage and feel comfortable about being able to take on a second home loan.
It works in the same way as a first mortgage, only with stricter affordability checks, because it could add significant financial strain to pay for a second mortgage.
So, if you want to get a mortgage for a second home you need to be sure than your finances are in good order. You can use a second home mortgage calculator to see how much you would like to borrow and what the repayments are likely to be.
Some people looking to buy a second home might be thinking of taking out a second charge mortgage, which is sometimes referred to as a second mortgage, but these are separate types of loan.
The affordability checks on a second charge mortgage or secured loan aren't as strict because your existing home is used as security. Whereas with a second mortgage, you're simply taking out a brand new mortgage.
If you're looking to apply for a second mortgage because you're planning to buy another house or flat then it is possible to do so. You can have two mortgages running at the same time – so long as you can afford to repay the monthly instalments on each of them.
A second mortgage on a second property is another long-term loan in your name held against the property you're trying to buy as a second property, a buy-to-let or a holiday home. Essentially it's another mortgage that is separate to your existing one.
A second mortgage isn't the same as a secured loan, remortgage or second charge mortgage, which confusingly may also be referred to as a ‘second 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.
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's 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.
Banks are generally more likely to lend to you if they have some kind of security as insurance in the event you fail to repay your debt.
Property is usually considered the main type of security, meaning that if you can't keep up with repayments on your second charge mortgage or secured loan, the bank can seize your current property.
With a remortgage, you're switching your mortgage providers – essentially, asking your new mortgage provider to pay off your existing mortgage. This means you pay your debt to your new mortgage provider instead, and these deals are usually done on the basis of receiving a more favourable rate on your mortgage.
However, with a second mortgage, it's separate from where you currently live or any other type of mortgage you have. This means that if you fail to repay the debt, the bank can only seize the property you're using their mortgage to buy. Your current mortgage would not be affected.
If you're 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 applies when you sell a property that's not 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.
You may also find that the choice of mortgages for foreign properties is smaller as a result of Brexit.
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. This will determine how much you're likely to need to pay the mortgage repayments each month.
This rule similarly applies if you're 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 will not 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.
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.
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.
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.
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.
Should you get a second mortgage?
The advantages of taking out a second mortgage are:
It's separate from your existing mortgage, so your current home is not at direct risk
If you can afford it, a second mortgage is likely to be a cheaper loan than a secured loan or second charge mortgage
The disadvantages of a second mortgage are:
It requires a second deposit
It's expensive to pay for two mortgages at the same time
Stricter affordability checks
Puts your current home at indirect risk (e.g. you may have to sell in order to afford repayments on the second mortgage)
Since the Mortgage Market Review (MMR) was introduced in 2014, banks have carried out stricter checks on new mortgage applications.
If your current lifestyle allows you to live within your means and you only have a small portion of your income left over each month, then you're unlikely to be able to afford a second mortgage.
Even if you plan to cut back on a few things, banks will make the assessment based on how you currently live and over the last few months.
How can improve my chances of getting a second mortgage?
Tips for applying for getting a second mortgage:
Reduce your spending and cut back on subscriptions and other bills well before applying (ideally three months at least)
Prepare proof that your income can cover two concurrent mortgages
Compare mortgages across the market to find the best deal for you
Make plans for your second home as this will affect your mortgage – will you rent it out, move into it, or use it as a holiday home?
Consider trying to repay your first mortgage early
Read our guide on how to get a mortgage to learn more.
If you don't think you can afford a second mortgage, then a second charge mortgage (like a secured loan) could be a more suitable option.
With a second charge, secured loan mortgage your home's equity is used to help you get a bigger loan amount. Your home is put up as security in the event you can't repay your debts and could be repossessed, so there's more at risk.
The bigger your equity, the more you can potentially borrow. It may also help you get more favourable rates on your loan, but generally the interest rate is likely to be higher than a standard mortgage.