Second home mortgages are for people who are looking to purchase a second property for their own use – as a holiday home, to be closer to work during the week or for a family member, for example – rather than to rent out, in which case you would need a buy-to-let mortgage.
It works in the same way as a first mortgage, only with stricter affordability checks, because paying for a second mortgage could add significant financial strain.
So, if you want to get a mortgage for a second home you need to be sure your finances are in good order. You might be coming to the end of making your repayments on your first mortgage and feel you could comfortably take on a second home loan, for example.
You can use a second home mortgage calculator to see how much you could borrow and what the repayments are likely to be.
If you're looking to apply for a second mortgage because you're planning to buy another house or flat it’s possible to do so. You can have two mortgages running at the same time as long as you can afford to pay 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 new property you're buying, separate to your existing one.
A second home 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.
If you buy another home you want to apply for a mortgage on, your mortgage provider will view that as your second home.
Even if you plan to live in the second home your application will be treated as a second home mortgage because you already have a mortgage you are currently paying for.
It’s worth checking with your current mortgage provider whether it would be willing to offer you a second home mortgage as better deals may be available to existing customers and your application could be more straightforward.
All mortgage providers offering second home mortgages generally have stricter criteria when you apply compared with first mortgages though. You’ll usually need a larger deposit of at least 15% of the property’s value. Second home mortgage deals are also likely to have higher interest rates than standard ones.
You will go through all the same financial assessments as usual but the mortgage provider will be extra cautious about lending to you, as you’ll be making two mortgage repayments every month instead of one.
As with all mortgages, the loan is secured on the property. This means that if you can't keep up with repayments on your second mortgage the lender can seize it to sell it and get its money back.
With a remortgage, you're switching your mortgage provider or deal to get a better interest rate. If you’re switching provider, you’re essentially asking your new provider to pay off your existing mortgage and your debt will be with your new mortgage provider instead.
However, with a second mortgage you’re using it to buy another property rather than the one you currently live in. This means that if you fail to repay the debt, the lender can only seize the property you're using the mortgage to buy. Your first mortgage would not be affected.
If you decide to rent out the property later, you’ll need to get permission from the lender, so if you think you might want to do this in the future check that your lender would allow it and what would be involved. There may be extra costs.
If you buy a second property that becomes your main home, you should inform HM Revenue and Customs (HMRC) within two years. This is to ensure you avoid paying capital gains tax (CGT) on it if you sell the property later. CGT is a tax that applies when you sell a property that's not your 'main home' so would still have to pay it on your other home if you sold it.
You could also get a mortgage to buy a second property abroad to use as a holiday home. However, you would need to speak to a broker specialising in overseas mortgages as most UK lenders don’t lend on properties outside the UK. You may also now find it harder to get a mortgage to buy a property in the EU as a result of Brexit.
A second home mortgage is likely to involve tougher checks on your application because you will already be paying back your first mortgage.
Before you apply you should find out whether your credit score has changed since taking out your first mortgage. You can do this by getting your credit reports from the three credit reference agencies – Experian, Equifax and TransUnion – which you can do for free. Any missed debt payments or additional credit taken out could reduce your chances of being approved for a second home mortgage.
Most second home mortgages require at least a 15% deposit, and you may need to put down even more than that if your current income won't cover a second mortgage for the amount you want to borrow as well as your first mortgage.
As interest rates are usually higher when getting a mortgage to buy a second property, borrowing the same amount is likely to cost you more than with your first mortgage.
Your existing mortgage repayments will form part of your financial assessment when applying for a second home mortgage. You won't be approved for a second home mortgage if you can’t afford to make the repayments on top of your existing ones.
As with any other mortgage, you’ll need to work out if you want a fixed or variable-rate deal. A variable rate might be lower initially but if rates go up you could end up paying more overall than if you took out a fixed rate. Fixing your mortgage also means you’ll always know how much your mortgage repayments will be.
You should also take mortgage fees into account when comparing deals by looking at the total cost over the deal period. One with no fees could have a higher interest rate that means you could end up paying more than if you took out a deal with fees.
It could be worth waiting until you’ve repaid more of your current mortgage or paid it off completely as this could mean you’ll get a better deal on a second home mortgage.
Bear in mind that along with the usual costs of buying a property you’ll also have to pay an extra 3% in stamp duty on top of the normal rates when you buy a second home.
The advantages of taking out a second home 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 home mortgage are:
It requires a second deposit
You’ll need to pay for two mortgages at the same time
Stricter affordability checks will apply
It puts your current home at indirect risk - for example, you may have to sell it to afford the repayments on the second mortgage
Since the Mortgage Market Review (MMR) in 2014, banks have carried out stricter checks on new mortgage applications.
If your current lifestyle just allows you to live within your means and you only have a small portion of your income left over each month, you're unlikely to be able to afford a second mortgage.
Even if you plan to cut back on a few things, lenders will make the assessment based on how you currently live and look back over the last few months.
Tips for applying for a second home mortgage:
Reduce your spending and cut back on subscriptions and other bills well before applying (three months at least)
Gather together any documents that can prove your income can cover two mortgages at the same time
Compare mortgages across the whole market to find the best deal for you. A mortgage broker can help you do this
Consider trying to repay your first mortgage early
Read our guide on how to get a mortgage to learn more.
Another way to finance buying a second home is to take out a second charge mortgage. This could be useful if you can’t get a mortgage on the second home you want to buy – because it’s an unusual property, for example.
Second charge mortgages are sometimes referred to as second mortgages but they are a different type of loan to a second home mortgage. They are secured loans you take out on your existing property so you can use the equity built up in it to buy a second home rather than taking out a mortgage against the new property. The more equity you have in your existing home, the more you can potentially borrow.
Interest rates tend to be higher than for second home mortgages and the lender will still want to make sure you can afford to pay off the loan on top of your existing mortgage. You’ll also put your first property at greater risk if you can’t repay the loan.
If you’re weighing up whether to buy a second home, you should consider the pros and cons before deciding whether it’s right for you.
If you’re buying it as a holiday home, you’ll always have a ‘home from home’ to go to for breaks and will be able to get away at a moment’s notice
You could make money from any increase in its value if you sell it
If you’re buying it to be closer to work during the week, you’ll save time and money on commuting
You can pass it on to your children or grandchildren when you die
If you decide to rent it out later you could get extra income
If you’re buying it with a mortgage, you’ll have repayments to make every month
You’ll have to pay to maintain the property and extra bills, such as for utilities
If it depreciates in value you could lose money if you sell it
You’ll need to pay capital gains tax on any profits if you sell it
You could get tired of going on holiday to same place many times