Mortgage for a Second Home Explained Deposits Rates and Advice
Buying a second property is an exciting step. You may be dreaming of a coastal retreat a countryside escapes a home closer to work or a place for a family member to live.
Whatever your reason the idea of securing a mortgage for a second home often raises more questions than buying your main residence ever did.
That is because lenders treat second homes differently. The rules are stricter the costs are higher and the affordability checks go deeper.
What is a mortgage for a second home
A mortgage for a second home is designed for someone who already owns a property and wants to purchase another one. This second property is not replacing your main residence and is usually intended for personal use rather than full time renting.
Second homes can include a holiday property a weekday residence closer to work or a home bought to help a family member.
The intended use of the property is important because it determines the type of mortgage you need and how lenders assess your application.
If you plan to rent the property out for more than limited occasional use a different type of mortgage may be required.
Can you get a mortgage for a second home
Yes, you can get a mortgage for a second home, but the criteria may be stricter than for your first property.
Lenders see second home borrowing as higher risk because you already have an existing mortgage commitment.
To offset that risk lenders may require a larger deposit stronger affordability evidence and a clean credit history. Fewer lenders may also be available.
Find out Your Options
How much deposit do you need for a second home
Most lenders expect a larger deposit for a second home. Typically, this ranges from ten to twenty five percent of the property value although some lenders may require more depending on your circumstances.
A larger deposit can open up more options and better rates. It also reassures the lender that you are financially committed and have sufficient resources to manage two properties.
Your deposit may come from savings investments or equity released from your existing home. Each option has different implications and needs to be structured carefully.
Affordability checks for a second home mortgage
Affordability is one of the biggest hurdles when applying for a mortgage for a second home. Lenders will look closely at your income outgoings and overall financial resilience.
You must demonstrate that you can comfortably afford both your existing mortgage and the new one even if interest rates rise or your circumstances change. This means lenders often stress test your finances more rigorously.
Every lender uses a different affordability model. Some are more generous with income multiples while others are stricter on committed expenditure.
Residential or buy to let which mortgage do you need
The way you intend to use your second property is critical.
If the property is for your own personal use such as a holiday home or a residence during the working week you will usually need a residential second home mortgage.
If you intend to rent the property out on a longer term basis you will normally need a buy to let mortgage. Holiday lets also often require a specific product designed for short term rental.
Using the wrong mortgage type can lead to serious issues including breaches of lender terms.
Additional costs of owning a second home
Buying a second property comes with extra costs that go beyond the purchase price and mortgage payments. Planning for these early is essential.
Stamp duty is higher on additional properties and can significantly increase your upfront costs. This needs to be factored into your overall budget from the start. You can utilise our stamp duty calculator for the cost.
You may also face higher council tax charges depending on the property location and how often it is occupied. Utilities insurance and maintenance costs will apply to both properties which can add up quickly.
When you eventually sell a second home any increase in value may be subject to capital gains tax.
Insurance and protection considerations
Insurance is often overlooked when buying a second home, but it is just as important as the mortgage itself.
Standard home insurance may not be suitable particularly if the property is left unoccupied for extended periods. You may need a specialist policy that reflects how the property is used.
Protection planning is also crucial. With two mortgages your financial commitments increase and so does the importance of protecting your income and your family.
Can you use equity from your main home
Many people use equity from their main residence to help fund a second home purchase. This can be an effective strategy when done correctly.
Releasing equity involves remortgaging your existing property to raise funds for the deposit. This increases your borrowing and must be affordable both now and in the future.
Some lenders are comfortable with this approach while others are more cautious. The structure of the borrowing and how it impacts your overall loan to value position is key.
Why a mortgage advisor is recommended for a second home
Second home mortgages are more complex than standard purchases. Criteria vary widely between lenders and small details can have a big impact on the outcome.
A mortgage advisor saves you time by identifying suitable lenders early. They also reduce the risk of declined applications which can affect your credit profile.
Kerr and Watson compare the whole market including specialist lenders to find solutions that are not always available directly.
Conclusion
A mortgage for a second home can open the door to new opportunities whether for lifestyle family or long term planning. But it also brings more costs and stricter lending criteria.
If you are considering buying a second property or simply want to understand your options, contact Kerr and Watson today.
