By Maurice Shasha
// Thu 11th
Second-time buyer? We offer some guidance on second mortgages.
If you are thinking of buying a second home, then you’ll probably need a second mortgage. They’re not that different from mortgages for primary residences, the type of mortgage you require depends on what kind of property you’re buying and what you intend to use it for.
What is a second home mortgage?
A second home mortgage is a mortgage for buying a second residential property, not to be confused with re-mortgaging.
There are several reasons why you may require a second mortgage. Maybe you want to help a relative onto the property ladder, or perhaps you are dreaming of a holiday home for you and your family to enjoy. Or, maybe you want to boost your investments with a buy-to-let property.
Unless you have the cash savings to buy a second home outright, then you’ll need a mortgage. The type of mortgage you will need depends on what kind of property you are buying and what you intend to use it for.
Buying a second property with a mortgage
Unless you are a cash buyer, to buy a second home you’ll need to take out a second residential mortgage on that property. So, let us shine some light on two different types of second mortgages.
Second Mortgages for a Holiday Home
If you wish to buy a holiday home to enjoy with your family and have no plans to rent it out, you should be able to take out a second ordinary residential mortgage. The mortgage lender will want to make sure you can afford both your current mortgage repayments as well as those on a second mortgage. Therefore, you’ll probably need a larger deposit and you might be subject to slightly higher interest rates.
If you are planning to let out your holiday home regularly, then you need to need to apply for a specific holiday home mortgage.
Second Mortgages for Buy-to-Let Properties
If you are buying your second property as a buy-to-let investment, then you should apply for a buy-to-let mortgage, not a second residential one. The rates are usually higher, and you’ll have to put down at least a 25% deposit, but they can be interest-only rather than repayment.
If you buy a second home as your new primary residence and decide to keep your previous home to rent out, you’ll have to obtain permission from your lender and convert your residential mortgage on your former property to a buy-to-let mortgage.
Buying a second home as an investment
You may be looking to purchase a second property purely as an investment opportunity, for example, to renovate a property and sell it on quickly. In this case, you have two options:
Bridging loans are short-term loans with relatively high-interest rates. They are typically used to cover the cost of a single, specific project on a home.
Development loans are short-term loans, generally for between 6-18 months. They are designed to assist with the purchase costs and build costs associated with big residential property improvement projects. To apply, you will need to submit detailed plans to the lender who will decide if your project qualifies for a development loan. These loans tend to have relatively high-interest rates and you will probably be required to put down a large percentage of the cost yourself.
How many residential mortgages can you have?
Technically, in the UK, you can have as many residential mortgages as you like, but most lenders only allow a maximum of 2 residential mortgages.
Lenders will want to make sure that you are not taking out a second residential mortgage with plans to earn rental incomes from your second property.