Second Home Mortgages
Getting a home loan for another property
You may want to obtain a second mortgage for a number of reasons, whether it’s for investment purposes or just to have a second residence for holidays.
Obtaining a second mortgage isn’t always straightforward, and can be a bit more complex than getting your first mortgage. However, don’t worry, our guide is here to run you through all the areas of these mortgages.
If you need more information that isn’t covered in this page, reach out and discuss your needs with one of our expert advisors.
- Can you get a mortgage on a second home?
- The process of obtaining a second home mortgage
- What criteria do lenders impose?
- How much deposit will you need?
- Interest rates on second home mortgages
- What classes as a “second home”?
- Can you remortgage to buy a second home?
- How much is Stamp Duty on a second home?
- Frequently asked questions
Can you get a mortgage on a second home?
Yes, obtaining a mortgage on a second home or property is totally possible. A major factor lenders will consider during the application process is your finances.
This is because they will need to ensure you can make the new repayments, as well as the ones on your current mortgage.
Step 1.
You will first need to find a suitable lender that will offer you a second mortgage. This doesn’t necessarily need to be your current lender.
Step 2.
At this point it’s likely you also have a second property that you wish to purchase in mind.
Step 3.
From here you can begin to prepare all of the documentation required for the application. You will need the following:
- Identification e.g., passport or driving licence.
- Proof of address e.g., a recent utility bill or council tax letter.
- Between 3–6 months’ worth of bank statements, including proof of deposit.
- Pay slips to prove your income.
Step 4.
Once you have gathered the relevant documentation, you can then look to apply for an agreement in principle with your chosen lender. This confirms how much you can borrow based on your circumstances.
Step 5.
You will next need to use your conveyancing solicitor to carry out a range of tasks. Conveyancers ensure all the legal elements of a property transfer are conducted correctly.
Step 6.
Once all the legal elements are sorted, you can then apply for the mortgage and, if you are successful, you will receive an offer.
This is a very brief description of an in-depth process that can take several weeks. If you want support throughout your whole journey, reach out to us today. Our team of expert mortgage advisors are on hand to discuss your situation and find you the best products on the market.
Will you qualify? Understanding a lender’s requirements
As mentioned above, one of the main areas that a lender will assess is your finances. As with any mortgage type, risk plays a big part. Therefore, a lender will need to ensure you can comfortably afford the second lot of payments on top of your primary mortgage. If they deem the risk is too high, it’s likely that they won’t lend to you.
Having a stable income and a good debt-to-income (DTI) ratio is a great way to demonstrate you are a low-risk borrower. A DTI ratio is essentially the amount of debt you have in relation to your income.
The worse your ratio, the riskier you are seen as by lenders. This is because you will have less income to use, increasing the chances of you not making mortgage payments. If you’re applying with a partner or spouse, their income can be included in the affordability assessment, which may allow you to qualify for a mortgage with a higher DTI ratio.
Lenders will also look at how long you have left to pay on your primary mortgage. The longer you have, the riskier it can look. This is because you will be paying for two mortgages for a longer period of time. Lenders will assess this in relation to your income, if you can comfortably afford both payments with your income, then there won’t be an issue.
In addition to this, lenders will also look at more common factors like your credit history and your deposit size. Again, if you have a bad credit history or small deposit, you can be seen as a risky borrower.
So, before applying ensuring your credit is in a good place and that you have a sizeable deposit.
Building your second home foundation: deposit requirements
Like with every mortgage, this number will vary from lender to lender. However, due to the risk of taking on an additional large financial commitment, lenders will require a higher deposits than if you were applying without a current mortgage.
At a minimum you will be required to put down 15% to 20% of the property’s value. However, lenders can extend deposits for second homes up to 25%.
Other areas of your application, such as your credit history and income, can also factor how much a lender requires. For example, if you have a high income and good credit history a lender may only require the minimum amount.
Ensuring you can comfortably meet or exceed the deposit requirements will put you in the best position to receive a competitive product. If you want to discuss how much deposit you may need for a second home mortgage, reach out today!
Unlocking the best interest rates for your second home mortgage
Typically, second home mortgage rates are slightly higher than on your primary mortgage. This is because the lender will need to cover the risk as you will be paying two mortgages instead of just one.
It can be hard to give exact figures on interest rates because every application is different and also because the market is constantly fluctuating.
To get a better understanding of the interest you might pay, reach out today! Our expert team are happy to discuss your situation.
What classes as a “second home”?
A second home is any other property that you own. You do not necessarily have to live in it, but instead it could be used as a holiday home or investment property.
A second home could also be a property jointly owned with another family member or a property purchases for your children’s use.
It’s possible to obtain a Buy-to-Let property even if you have an existing mortgage. As with any Buy-to-Let mortgage, lenders will want to see that the monthly rent covers your monthly mortgage payments.
The rent will normally need to be anywhere from 125% to 145% of the monthly mortgage payments. This shows lenders that you can comfortably make mortgage payments each month and have money left over.
You will also require a larger deposit for a Buy-to-Let property when compared to a residential mortgage. This is due to the high risk nature of Buy-to-Let mortgages.
If you’re buying a second property and it’s going to be a holiday home, a lender will need to be made aware of this.
You will first need to make them aware of which property will be your main residence. Then you will need to give them a reason for why you are buying the holiday home. Is it for you to use seasonally or do you plan to rent it out? If you wish to rent it out while you are not there then you will need a certain type of mortgage. This way it will no longer be classed as a holiday home, but instead a holiday let.
Holiday lets incur some different implications, so if you are looking to obtain one why not reach out? We have advisors who specialise in this area and are happy to help you find the right mortgage.
Can you remortgage to buy a second home?
If your primary mortgage has been paid off, or if you have lots of equity built up your home, then you could look to remortgage to release some of this equity and use it as a deposit towards a second home.
In this case, as one of the main deciding factors lenders will look at how much equity you currently have in your home. Typically, a minimum of 10% equity is required. However, this figure will vary depending on the value of your home.
Lenders will also carry out in depth checks into your credit history as well as your income. Again, they will want to mitigate their risk exposure and ensure you can meet payments on both mortgages. Therefore, it’s likely that interest rates may increase if you take out a second mortgage.
Providing as much proof as possible to show lenders you can meet both payments can be really beneficial. This can be done through things like payslips and bank statements.
If you’re thinking of remortgaging to release equity to buy a second home, why not get in touch today? Our expert advisors will be able to discuss your situation over a free, no-obligation consultation.
How much is Stamp Duty on a second home?
Stamp Duty Land Tax (SDLT) is a tax paid on properties purchased in England and Northern Ireland. When buying a second home you will pay an additional 3% on top of your standard rate of stamp duty. You can use the table below as a guide based on your property value.
| Value of your property | Basic SDLT rate | SDLT rate paid on a second home |
| £40,000 to £250,000 | 0% | 3% |
| The next £675,000 (the portion from £250,001 to £925,000) | 5% | 8% |
| The next £575,000 (the portion from £925,001 to £1.5 million) | 10% | 13% |
| The remaining amount (the portion above £1.5 million) | 12% | 15% |
If you live in Scotland you will be required to pay a similar tax called Land and Building Transaction tax. This is an additional 6% on top of the band your property value falls into. And if you live in Wales you will also pay another similar tax called Land Transaction Tax, this is an additional 4%.
If you live in England or Northern Ireland and want to understand how much stamp duty you may owe, why not try our free Stamp Duty calculator.
Clearing Up the Confusion: Second Home Mortgage FAQs
In the UK there are no legal limits on how many mortgages you can have. Although, every time you apply for a new mortgage you will need to declare how many mortgages you currently have to your lender.
Certain lenders may stop lending to you after you have just two residential mortgages. It’s common for people to have two properties if they use one to stay in for work and then another that is used on the weekends, for example.
It can be a different story if you’re a Buy-to-Let portfolio landlord. In this case, you can usually obtain more mortgages as they are seen as investments. But, lenders may still impose limits based on your personal circumstances, such as your finances. Lenders want to minimise their risk exposure and ensure you can still meet payment on all mortgages.
They do this by limiting how many mortgages you can have with them, as well as how many mortgages you can have overall. For example, they may limit one individual to have 5 mortgages with them and 10 mortgaged properties in total between them and other lenders.
Yes, in general these types of mortgages are more costly than if you were applying without an existing mortgage. The reasons for this is:
- Deposit requirements are usually higher – a minimum of 15% to 20% of the property value is required.
- Interest rates are also higher due to the risk lenders need to offset as you are paying two mortgages.
- You will need to pay additional Stamp Duty Land Tax on top of the base rate for your property’s value.
Phil Scott
Director
About the author
Phil has worked in the financial services industry since 1992, having started with a large insurance company. He went self employed in 1996 as an Independent Financial Adviser before setting up his first company, Needham Market Home Financial in 1999.
After four years, he decided to concentrate solely on mortgages and related insurances, and The Mortgage Centres was born. Since then, Phil has been influential in the opening of several new offices as the business continues to grow.
Qualifications
Financial Planning Certificate: 1,2 & 3
Year Attained: 1992
Certificate in Mortgage Advice and Practice (CEMAP)
Year Attained: 2001
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