Second Home Mortgages
Millions of people in the UK dream of owning a second home. A place to escape to on weekends or holidays, or even a permanent retirement home.
If you’re one of those people considering taking out a second home mortgage, there are a few things you need to know. We will cover the basics of mortgages for holiday homes in the UK.
What is a second home mortgage?
A second home mortgage is simply a mortgage taken out on a property that is not your main residence. That means you already own another property, which is considered your primary residence, or home.
In order to qualify for a second home mortgage, most lenders will require that you have a good credit history and a healthy income. They will also want to see that you have enough equity or savings to cover the deposit on the second home.
The deposit required for a second home mortgage is usually higher than that of a main mortgage, typically 20-30% of the property value. That’s because lenders see second homes as a higher risk investment.
Another difference between a second home mortgage and a primary residence mortgage is the interest rate. Second home rates are slightly higher than standard residential rates.
How to get a mortgage for a second home
If you’re looking to get a mortgage for a second home, there are a few things you need to do.
First, you’ll need to get in touch with an experienced mortgage broker and explain that you’re looking for a mortgage for a second home. They will likely ask you some questions about your finances and why you’re looking to purchase a holiday home.
There are many different types of houses in the uk and its important to let your broker know what type you wish to buy. Not all properties are acceptable to all lenders, and some are restricted to just occasional use or letting.
Once they have all the necessary information, they will be able to give you an idea of what kind of mortgage products are available to you and what interest rates you can expect to pay.
From there, it’s simply a matter of finding the right mortgage product for your needs and applying for it. The process is very similar to applying for a standard mortgage, but there may be some additional requirements depending on the lender.
Be prepared to answer questions about your employment, your financial history, and your plans for the property. The lender will also want to know if you plan to rent out the property or just use it yourself.
Eligibility criteria
The eligibility criteria is broadly the same as for a normal residential mortgage and all lenders will require a decent deposit, which we explain below.
Mortgage affordability is even more important when buying a second property, as you will then have two mortgages to pay each month. Expect the lender to ask detailed questions about your income and expenses, and about any other savings or assets you may have.
You are likely to find it easier to get a mortgage for a second home if you intend to use it as a holiday let or buy to let, as these will generate a rental income to help pay off the mortgage.
How much deposit do I need for a second mortgage?
The deposit required for a second home mortgage is typically 25%, so 75% loan to value. So, if you’re looking to buy a £500,000 second home, you’ll need to have at least £125,000 saved for the deposit.
Of course, the size of the deposit will also affect the interest rate you pay on your mortgage. The larger the deposit, the lower the interest rate.
You can learn more about deposits in our article: What deposit do you need for a holiday let?
Remortgaging
It may be possible to remortgage your main home to generate some or all of the deposit. In this case, both mortgages will need to pass affordability checks.
Lenders call this capital-raising, where you apply for a remortgage but ask to borrow more money than you currently owe. This is a popular way of financing a second home. Our article Can you remortgage to buy another property? explains this further.
How many mortgages can I have?
There is no limit to the number of mortgages you can have in the UK. It all depends how each lender decides to assess your financial situation and their perceived risk.
Property types
Second homes can come in all different shapes and sizes. And if they’re being let as well then the more unusual or unique properties can be very lucrative.
It’s important to be aware of how the property is constructed. ie the materials used for the walls and roof. If these are deemed to be non-standard then you will most likely need to source a specialist property mortgage. The most obvious examples of these would be:
- Cottage with a thatched roof
- Converted barn
- Old School House
- High-risen flats
- Disused pub
You will find more useful information in our article: What does non-standard construction mean?
Not on the High Street!
The high street lenders can’t help every mortgage customer and they prefer the simple, low-risk ones.
If your situation is a bit different or needs a more personalised solution then our brokers can help.
Expert advice, for all situations.
Bridging Loans
The most flexible of secured loans and often misunderstood. Bridge loans can be used in so many different ways and can be arranged super fast.
Large Loans
High net worth mortgage brokers understand complex large loans and unique situations and can source bespoke deals from the right lenders.
Let to Buy
Let to buy combines a buy to let remortgage with a residential mortgage. Allowing you to move house while keeping your current home.
Second home as a buy to let
If you plan to use your second property as a buy to let then you will need a buy to let mortgage.
This is different to a second home loan as the lender is expecting you to rent out the property to tenants and receive an income each month.
The application criteria is not as stringent and you will be able to choose an ‘interest only‘ repayment method.
What’s the difference between a holiday let mortgage and a buy to let mortgage?
In this article we look at the main differences between a UK holiday let and a buy to let. Both can be excellent property investments but just because they both involve letting does not mean that they are alike; in fact the word “let” is possibly the only similarity!
Can I rent out my holiday home?
This is an important question and the answer is:
It depends…
Most lenders are OK if you rent out your holiday home for just a small part of the year.
This should be for short periods only, incidental and minor usage. You still need to check with the lender beforehand and they will all have their own limits on how many weeks or months they are happy with.
If it is your intention to let the property for 2+ months each year then you will need a holiday let mortgage. The lenders that offer these will accept you renting out the property for much or all of the year.
Should I use a mortgage adviser?
If you’re considering taking out a second home mortgage, it’s a good idea to speak to a whole of market mortgage adviser before you get started. They will be able to assess your financial situation and give you an idea of the different mortgage products available to you.
They can also help you find the best deals on interest rates and fees from a wide range of lenders, and guide you through the application process.
Most lenders will be looking into how you can afford the monthly repayments for both mortgages. Your adviser can provide some advice regarding this prior to making a formal application.
