Looking to finance a second home? Expert mortgage adviser, Erin Gallacher, explains the options for purchases and remortgages.
Reasons to get a 2nd home mortgage
Many lenders provide mortgages to buy second homes if you are planning to use the property for one of the following purposes:
- For dependants to live in, i.e. parents or children
- To live in during the week to be closer to work and avoid the daily commute
- For personal use as a regularly-used holiday home. I say regularly because it will need to be occupied frequently to comply with the necessary buildings insurance. (Not to be confused with a holiday let where you rent the property to others for short periods.)
Can I afford a 2nd home mortgage?
When assessing affordability for a loan, the mortgage lender will want to be comfortable that you can afford both the mortgage on your home and the second residence. For this reason they may require a larger deposit, usually a minimum of 15%. Besides checking your credit rating and credit score, they will also scrutinise all your income and expenditure during the application process.
It’s worth remembering that each lender has its own affordability model, which they tend not to share, so if you need a mortgage to buy a second home do ask us for help as mortgage brokers we are pretty good at matching borrowers to the right lender.
How much can I borrow to buy a second home?
In addition to assessing affordability, lenders tend to cap loan to value for the second home at 75-85%, although the final percentage will depend on the outstanding LTV on your home.
If you have sufficient equity in your home, some lenders will let you remortgage to raise capital which you can use as a deposit to fund the second home purchase.
Mortgage rates for second homes
Rates are very competitive. Normally lenders will offer their standard residential mortgage rates. Remember, the lower the LTV, the better the rate you can expect to be offered.
It’s important to remember that most second home purchases are now taxed at the higher stamp duty rate, i.e. there is a 3% surcharge.
You can use our stamp duty calculator to find out how much you’ll owe.
Remortgaging your second home
If you already own a second home and are looking to remortgage it, the same fundamentals apply, although you won’t need to factor in the stamp duty!
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