/ Mortgages

Second home mortgage

A second home mortgage

Second-home mortgages are very common. If you have a good mortgage affordability then you may be able to get a second home mortgage to buy your property.

Unfortunately, you won't be able to use any government schemes to get a second home.

As long as you are able to show the mortgage lender that you can make those mortgage repayments for both of your homes then you may be able to get a second home mortgage.

Some mortgage borrowers will consider factors such as the distance from your first home when deciding on whether to offer you a second home mortgage or not.

If you are worried about your ability to be able to get a mortgage then you should speak to a mortgage broker who may be able to assist you in finding the right mortgage for your needs.

What is the affordability criteria for a second home

Homes which you don't live in or only live in during the holiday period or during the week may be classed as second homes and not necessarily a buy to let as you aren't renting the property out.

Your affordability for a second home mortgage will mainly focus around your income and how much disposable income you have after your monthly committed expenditures which include your first mortgage.

second home mortgages aren't an actual category but you may find a lot of mortgage lenders willing to lend for second homes as long as you can afford the monthly mortgage repayments. Mortgage lenders will stress test your mortgage to see if you could potentially still keep up the monthly mortgage repayments if they rose.

As long as you have a good credit score, a mortgage deposit and your income meets the mortgage lenders mortgage multiple requirements then you may be able to get a second home mortgage.

The alternative to getting a second home mortgage alone will be to get a joint mortgage. The benefits of joint mortgages are of course the fact that you may be able to combine the mortgage affordability of more than one borrower meaning you could potentially build a mortgage deposit faster and afford more.

When looking to get a second mortgage you should be aware that there may be stamp duty considerations which you have to make.

Can you rent out your second home?

Some mortgage lenders won't let you rent out your second home as this will be a buy to let which should have been obtained with a buy to let mortgage and then there are other mortgage lenders who may allow you to rent your second home out for a limited period.

How much mortgage deposit do I need for a second home mortgage?

When getting a second home mortgage you may find that the mortgage deposit requirement is usually around 25% and could be higher if you don't have enough income to cover the monthly payments for both of your mortgages.

Example of a mortgage deposit which you may need to put down for a second home mortgage:

You want to buy a house for £500,000

The mortgage lender wants a mortgage deposit of 20% and due to that a loan to value of 80%.

This means you will need a mortgage deposit of £100,000. This may seem too much for you to save at first but you may have some help.

If you are planning to get a mortgage alone then it is better to start your mortgage planning far in advance as it may take you longer to save when it is just you saving.

Government help for second homes?

Unfortunately, you won't be able to use a government scheme for a second hoe as the government schemes are simply for first-time buyers who need to sign a first-time buyer declaration.

Some of the Government schemes you will miss out on for a second home mortgage include:

  • Lifetime ISA- gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
  • Help to buy ISA- gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
  • Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
  • Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
  • Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
  • Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
  • Right to buy- allows you to buy your home at a discount price.
  • Preserved right to buy- same as above.
  • Right to acquire- same as above.

Depending on where you live, you may also have been able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.

Low deposit second home mortgages

You may struggle to find any low deposit second home mortgages as most mortgage lenders will want to see you out down a considerable mortgage deposit and therefore reduce the amount of risk they will be taking..

How much can you borrow for a second home mortgage?

When working out how much you may be able to borrow for a second home the key thing will be how much you make per year.

if you are borrowing alone the first thing you may want to do is check the mortgage lenders mortgage multiple.

The mortgage lenders mortgage multiple will be the first indication of if the mortgage lender may be willing to lend you the amount of mortgage you want based on your income.

Mortgage multiples are essentially a number by which the mortgage lender multiplies your annual income by to let you know the maximum they will be able to lend to you. When you apply for a mortgage in principle a mortgage multiple is likely what is used as a first indication of if a mortgage lender will lend to you.

Different mortgage lenders have different mortgage multiples so comparing for every mortgage lender may be hard and this is why a mortgage broker who may have experience of the mortgage multiples being used by a mortgage lender.

Mortgage multiples can be a bit misleading as when you get a mortgage in principle you may think that this is some guarantee that you are going to get a mortgage but it isn't.

After you have found a property which you want to buy, you will usually then go back and make a full mortgage application so the mortgage lender can give you a formal mortgage offer.

At this point, the mortgage lender will request your financial documents such as:

Your p60 tax return
Your SA302 tax calculation form if you are self-employed
Bank statements for at least 3 months
And 3 months worth of payslips
Your CV
Any contracts you may have with employers

With all this information the mortgage lender will analyse your finances to see how much you have in disposable income per month and if this can cover the cost of your monthly mortgage repayments on both your second home mortgage and your other mortgage.

If you can't cover the cost of your monthly mortgage as you are a single borrower then you may want to consider finding a co-borrower who can split the mortgage deposit with you or who will split the monthly mortgage repayments with you and apply for a joint mortgage.

You should seek independent legal advice when doing this as you may need to go into a tenants in common agreement, a cohabitation agreement and have a declaration of trust agreement if necessary.

Can you get a second home mortgage with supplementary income?

When getting a second home mortgage you may be able to increase your mortgage affordability with supplementary income. Supplementary income could be overtime, bonuses, stipend income and benefits.

Mortgage lenders don't all accept supplementary income but those who do may only accept a percentage of it rather than all of the supplementary income.

If most of your earnings as a second home are of supplementary income then you may need to find a mortgage lender who is willing to lend you the amount you are after and also accept most of your supplementary income.

Some mortgage lenders may also accept benefits whilst some will not accept benefits. If benefits play a significant stake in your income then you will want to find a mortgage lender who accepts a huger percentile of benefits as income.

Supplementary income could include:

Pension income
Investment Income
Overseas earned income
Maintenance Payments
Rental Income
Bursary
Stipend

How many debts can you have when applying for a second home mortgage alone?

If you are applying for a mortgage on a second home then the number of open debt accounts the mortgage lender may be willing to see open on your credit file may be limited.
Mortgage lenders may like to see that people could keep up on their debt obligations by paying back their debts on time but too much debt may not be good for anybody.

Usually, before a mortgage lender will give you a mortgage offer they will take a deep dive into your credit file to see how many debt accounts you have open and your repayment history on the debts.

For a second home, the mortgage lender may focus more on your disposable income after your committed expenditures which includes your debt.

Some mortgage lenders may prioritize the fact that you can make all your debt repayments each month and still have enough disposable income to cover your monthly mortgage repayments.

Other mortgage lenders may look at the current amount of debt accounts you have open as a single borrower and determine that they are too many.

Can you get a second home mortgage with bad credit?

Getting a second home mortgage with bad credit may be difficult as mortgage lenders may usually want to lend to borrowers who have a good credit score and have shown a good repayment history on all their previous debts.

There are however mortgage lenders who will offer a second home mortgage to a borrower depending on what type of bad credit was and what the circumstances were.

If it was a CCJ which was satisfied and is a certain age then some mortgage lenders may be willing to lend. Other mortgage lenders may lend if the CCJ was a maximum amount.

When looking to get a mortgage with bad credit the requirements from different mortgage lenders will differ and a bad credit mortgage broker may be able to assist you in getting a second home mortgage.

Bad credit could include:

A CCJ
An IVA
A debt management plan
A default
A bankruptcy
A home reposession

Can you get a second home mortgage if you are self-employed?

Getting a second home mortgage if you are self-employed is certainly possible but most mortgage lenders may want to see your accounts for 3 years at the very minimum although there may be mortgage lenders willing to offer a second home mortgage with less than 3 years worth of accounts but at least 12 months.

The documents you may need as a self -employed mortgage include:

Your P60
Your SA302 tax calculation form
Your company accounts if you work through a limited company

You may find using the services of a mortgage broker who has experience dealing with self-employed borrowers.

Other considerations a mortgage lender may take into account when offering a second home mortgage to a self-employed are:

The Trading style: are you drawing a salary from a company or do you have a claim over a share of retained profits. These could make a significant difference on how much you may be able to borrow.

Your experience: how long have you been self-employed and what is your working history.

Can you remortgage a second home mortgage?

Getting a remortgage as a second home is almost the same as getting a mortgage for a second home. For you to be eligible for a remortgage you will need to show the mortgage lender that you can keep up payments on your remortgage.

Can you remortgage into one name? (take someone off a mortgage)

Yes, you can remortgage to take someone off the mortgage but this is essentially getting a new mortgage on the property and the other person consenting to be taken off. It doesn't have to be done with the same mortgage lender.

If you choose to stay with the same mortgage lender there may be some advantages like avoiding early repayment fees and in some cases, you may be able to stay on the same mortgage product but ensure you check it is still competitive.

Whether you are staying with the same mortgage lender or you are remortgaging to a new mortgage lender you will need to meet theirmortgage affordability requirements and prove that you can make the mortgage repayments on your own which cover your second home mortgage and your initial mortgage.

When remortgaging and removing someone from the mortgage there may be some costs due to the transfer of equity process. If you change to a new mortgage lender there may be fees associated with getting a new mortgage as well to consider.

You should also seek tax advice as there may be some stamp duty considerations to take into account/

What to do if you have been rejected for a second home mortgage?

If you have been rejected for a second home mortgage the first thing you should know is that it isn't the end of the world and you may still be eligible for a mortgage with a different mortgage lender.

Your mortgage broker will look to find out why the mortgage lenders have rejected you for a second home mortgage and what you can look to do to increase your mortgage affordability before applying for a second home mortgage again.

It may be the case that you aren't eligible for a mortgage at the moment and may need to save more or find a co-buyer to reduce how long it takes you to get on the property ladder but you may want to first consult your mortgage broker or the mortgage lender to get a full understanding of why you were declined for a mortgage.

second home mortgage calculator

Most mortgage lenders offer second home mortgage calculators which can give you an idea of how much you may be able to borrow as a second home but these calculators don’t show a true reflection of your mortgage affordability. You should speak to a mortgage advisor from the mortgage lenders mortgage department or an independent mortgage broker who may be able to advise you on all your second home mortgage options in the market.

How to apply for a second home mortgage?

To apply for a second home mortgage you may want to first contact a mortgage broker.

Mortgage brokers are important as they can access second home mortgage products from across the whole of the market in some cases. This could be over 11,000 second home mortgage products. This may have some advantages than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which second home mortgage products may be suitable for you.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. This will allow you to shop for your home easier as more estate agents and sellers may take you seriously. Once you have found a home you want to buy the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your second home mortgage with the help of a conveyancer.

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