How To Use A Second Home Mortgage To Buy Another Property
If you want to buy a second property, a second-home mortgage should help. It works like a normal residential mortgage, but allows you to purchase a second home while you still have an existing mortgage.
There are plenty of different reasons why you might want to purchase a second home. Perhaps you need somewhere to live during the week that’s closer to your place of work. Or perhaps you want to pick up a holiday home close to the beach where you can spend the odd weekend and the summer holidays.
Unless you have the cash to cover the purchase, then you will need a mortgage to help buy that property.
And that’s where a second-home mortgage comes in.
What is a second-home mortgage?
In practice, a second-home mortgage is much the same as a normal residential mortgage you might use in order to purchase your primary residence.
You put down a deposit on the property, and then take out a mortgage for the remainder of the transaction price over a set term.
You’ll be expected to make monthly repayments, and then once you reach the end of that term the mortgage will be paid off and you will own your second home outright.
» MORE: How much can you borrow?
Who can get a second home mortgage?
Different lenders will have different criteria over precisely who they are happy to lend to, for example the minimum and maximum ages of borrowers they will consider. In general you will be able to get a second home mortgage if you are aged over 18 and a UK citizen.
Lenders will look carefully at your financial circumstances if you apply for a second-home mortgage, as they need to be confident that you can afford the mortgage repayments for both your primary home as well as your second property. As a result they will want to see that you have plenty of spare cash each month after your main bills are accounted for.
In addition, lenders are also likely to look for a larger minimum deposit ‒ for example 25% ‒ to help protect them against the risk that comes from a borrower having two outstanding mortgages. So you will need to have a significant amount of cash at your disposal to use as a deposit.
The fact that you have an existing mortgage can both help and hinder your case. Lenders will look positively on the fact you have already demonstrated that you can responsibly manage a mortgage. However, the fact that you already have a sizeable loan outstanding may mean they are wary about extending the level of debt you have.
» MORE: What is my debt-to-income ratio?
If you plan to purchase a second property as an investment, you will need to take out a buy-to-let mortgage. Letting out a property that has been bought using a residential mortgage is against the terms of the contract.
Second home mortgages and stamp duty
It’s worth remembering that purchasing a second home incurs a higher rate of stamp duty. This is the tax paid when you buy a property, but second homes ‒ whether they are for you to live in or as an investment ‒ come with a 3% higher rate of tax.
How do I get a second-home mortgage?
Plenty of high street lenders offer second-home mortgages so it is easy to research yourself online.
Alternatively you might want to use an independent mortgage adviser. They will be able to recommend the best mortgage for your circumstances, as well as lenders who are most likely to accept your application. It’s also worth bearing in mind that some lenders only offer their products through advisers, so by using one you will enjoy a wider range of options.
However, advisers may charge for their services, so you will need to budget for this added expense.
» COMPARE: Mortgage deals and rates
Do I have to get both mortgages with the same lender?
Taking out a second-home mortgage will likely mean you have two outstanding mortgages at the same time ‒ one against your primary home, and one against this new property you are buying.
Thankfully you are not obliged to use the same lender for both, allowing you to shop around for the best rates.
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John Fitzsimons has been writing about finance since 2007. He is the former editor of Mortgage Solutions and loveMONEY and his work has appeared in The Sunday Times, The Mirror, The Sun and Forbes. Read more