What is a second home mortgage?
You need a second home mortgage if you already own one property and want to take out another mortgage to buy a second home. Some reasons for looking for a second home may include having a residence during the working week or eventually letting it out. The reason for taking out a second mortgage is important because it will determine the type of mortgage you need.
What type of mortgage is right for my second home?
If you intend to live in your second home or use it to help a relative onto the property ladder, you'll need a second residential mortgage. If you take out a second residential mortgage and later decide to let the property out, you'll need permission from your lender and may have to pay an administration fee. It’s important to compare mortgages if you’re likely to want to let your property in the future, as some lenders may not allow it.
If you are buying your second home as a rental property, you will need to take out a buy-to-let mortgage. These usually have higher rates, and you’ll often be required to put down at least a 25% deposit. However, they are also often interest-only mortgages, which can help make repayments more affordable.
If you are looking to buy a holiday home that you wish to let for part of the year, you will need a holiday home mortgage. If you want to let on Airbnb, you’ll need explicit permission from your lender.
The many possibilities for your second home make comparing mortgages an important step. You can try our free comparison tool to compare second home mortgages, filter through the options so you can find the best deal on the market.
Buying a second home as an investment
You may also be looking to buy a second home to renovate and sell quickly for a profit. If this is the case, you have two options:
Bridging loans
A bridging loan can be secured against property or land that is not suitable for a traditional mortgage. It might be suitable if the property does not have a necessary facility, e.g. a bathroom. You could take out a bridging loan to cover the cost of installing a bathroom, then mortgage the property once the work is complete. You can then mortgage the property and the works will have also boosted the value meaning you can sell for a profit. A bridging loan covers the cost of a specific project or major home renovation; however, as they are short-term loans, they often have high interest rates.
Development loans
A development loan may be appropriate if you intend to buy a second property to fully renovate before selling for a profit. You’ll be required to present your plan to a lender, who will then release funds at different stages of the renovation process. Typically, a development loan is for 12 to 18 months and will have high interest rates. It’s also worth noting that you’ll be required to provide at least 30% of the renovation costs yourself.
What are the affordability criteria?
Affordability criteria for a second home mortgage are typically harder to meet than for a primary mortgage. This is because, if you’re already paying the mortgage on your first home, lenders may view you as a higher risk. Fewer lenders offer second mortgages, so you may find it harder to get competitive rates.
Your current mortgage will always be considered when lenders assess your new application. Income and affordability will be assessed in the same way, but because you already have one loan to repay, the lender will need to ensure you can afford both repayments.
A second home mortgage often requires a higher deposit. You are likely to need at least 25% to get the best mortgage deals.
Your lender may also be interested in why you are buying a second home and will be more likely to accept your application if they can see a clear benefit. One example that most lenders look favourably on is if your main residence is a family home and your second home is intended for living in during the working week.
Buying a second home overseas is often harder because lenders view currency fluctuations and foreign property markets as higher risks.
The easiest way to get the best rates for your second mortgage is to access multiple lenders.