A second home mortgage can be used to buy another property for your own use.
For example, you may want a holiday home or a property closer to work. You may also want a second home for family or personal reasons.
However, buying another property can be different from buying your main home.
You may need a larger deposit. Also, the lender will need to check that you can afford both properties.
There may be extra taxes and other costs too.
What Is a Second Home Mortgage?
A second home mortgage is a mortgage on a property that will not be your main home.
For example, you may already own a house in Glasgow. You then decide to buy a cottage on the coast for weekends and holidays.
If you need to borrow money for the cottage, you may need a second home mortgage.
However, the property must normally be mainly for your own use.
If you plan to rent it out, you may need a different type of mortgage.
Why Do People Buy Second Homes?
There are many reasons.
For example, you may want:
- a holiday home
- a home closer to work
- a property near family
- somewhere to use at weekends
- a property for a family member
- another home for personal use
However, the reason for buying can affect the type of mortgage you need.
Therefore, explain your plans clearly to the lender.
Is a Second Home Mortgage the Same as Buy-to-Let?
No.
A second home mortgage is generally for a property that you plan to use yourself.
In contrast, a buy-to-let mortgage is designed for a property that will be rented to tenants.
The lender needs to know how the property will be used.
Therefore, do not take a normal second home mortgage if your real plan is to rent the property out.
What If You Want to Let the Property Occasionally?
This can be more complicated.
For example, you may want to use a holiday home yourself for part of the year. Then, you may want to let it to visitors at other times.
A standard second home mortgage may not allow this.
Instead, you may need a mortgage that allows holiday letting.
Therefore, check the mortgage terms before buying.
How Much Deposit Will You Need?
The deposit needed depends on the lender and your circumstances.
However, lenders may ask for a larger deposit on a second home.
For example:
Property price: £200,000
Deposit: £50,000
Mortgage needed: £150,000
In this example, you are providing a 25% deposit.
The mortgage covers 75% of the property’s value.
Therefore, the Loan-to-Value (LTV) is 75%.
What Is Loan-to-Value?
Loan-to-Value compares the mortgage with the property’s value.
The calculation is:
Mortgage ÷ Property value × 100
For example:
£150,000 ÷ £200,000 × 100 = 75%
Therefore, the mortgage has an LTV of 75%.
A larger deposit gives you a lower LTV.
This can affect the mortgage deals available to you.
Can You Afford Two Mortgages?
This is one of the main questions a lender will consider.
You may already have a mortgage on your main home. Therefore, the lender needs to know whether you can also afford the second mortgage.
It may look at your:
- income
- existing mortgage
- loans
- credit cards
- regular spending
- dependants
- other financial commitments
The lender may also consider the running costs of both properties.
Therefore, having enough money for the deposit does not automatically mean you can get the mortgage.
What If Your Main Home Has No Mortgage?
You can still apply for a mortgage on a second property.
Having no mortgage on your main home may reduce your monthly financial commitments.
However, the lender will still carry out its normal checks.
Therefore, your income, spending and credit history will still matter.
Can You Use Equity From Your Main Home?
Possibly.
Some homeowners consider borrowing against their main home to help fund another property.
For example, suppose your home is worth:
£300,000
and your mortgage balance is:
£100,000
You have substantial equity in the property.
You may be able to increase your mortgage or remortgage to release some of that equity.
However, this increases the borrowing secured against your main home.
Therefore, consider the risks and total cost carefully.
Using Equity for the Deposit
You may be able to use money released from your existing home as the deposit on the second property.
For example:
Second home price: £200,000
Deposit required: £50,000
You may decide to raise the £50,000 against your main home.
However, you would then have additional borrowing on your main home as well as the mortgage on the second property.
Therefore, consider the two debts together.
How Will the Lender Check Affordability?
The lender will normally carry out an affordability assessment.
It may consider your income and regular costs.
For example, it could look at:
Mortgage payments
Loans and credit
Household spending
Childcare
Other property costs
The lender may also consider whether you could still afford the mortgage if interest rates changed.
Different lenders have different rules.
Therefore, the amount you can borrow can vary.
Are Second Home Mortgage Rates Higher?
They can be.
The mortgage rates available depend on many factors. These include your deposit, LTV and financial circumstances.
Some lenders may also have special rules for second homes.
Therefore, compare the full mortgage rather than assuming it will cost the same as a mortgage on your main home.
Consider Mortgage Fees
The interest rate is only one cost.
A mortgage may also have:
- product fees
- valuation fees
- legal costs
- broker fees
- Early Repayment Charges
Therefore, a mortgage with the lowest interest rate may not have the lowest total cost.
Compare the fees as well.
What Other Costs Should You Consider?
Owning two homes means paying the costs of two properties.
These may include:
- Council Tax
- energy
- insurance
- maintenance
- repairs
- service charges
- factoring charges
- security
- travel costs
Some of these costs continue even when you are not using the property.
Therefore, include them when working out affordability.
Council Tax on a Second Home
Council Tax rules for second homes vary by area.
You may have to pay the full amount. In some areas, an additional charge may also apply.
The rules can change.
Therefore, check with the council where the second property is located.
Insurance for a Second Home
A second home may need suitable buildings and contents insurance.
However, normal home insurance may have limits if the property is empty for long periods.
For example, a holiday property may be unused for several weeks.
Therefore, tell the insurer how the property will be used.
This can help make sure you have suitable cover.
What Taxes Apply When Buying a Second Home?
Buying an additional property can lead to higher property taxes.
However, the rules depend on where the property is located.
Different systems apply across the UK.
Therefore, check the rules before working out your budget.
Buying a Second Home in Scotland
Scotland uses Land and Buildings Transaction Tax (LBTT) for property purchases.
If you already own a home and buy another residential property, the Additional Dwelling Supplement (ADS) may also apply.
This can add a large amount to the upfront cost.
Therefore, include LBTT and any ADS due when working out how much money you need.
Buying a Second Home in England or Northern Ireland
Different property tax rules apply in England and Northern Ireland.
Additional property purchases can face higher Stamp Duty Land Tax (SDLT) rates.
Therefore, check the current rates before buying.
What About Wales?
Wales uses Land Transaction Tax (LTT).
Higher rates can apply when buying additional residential properties.
Again, the rules and rates can change.
Therefore, use current information when calculating the cost.
What If You Plan to Move Into the Second Home Later?
You may buy a second property with plans to make it your main home in the future.
For example, you may buy a home before retiring and move there several years later.
Tell the lender about your plans.
Also, remember that your tax position and insurance needs could change when the way you use the property changes.
Can a Family Member Live in the Property?
Possibly.
However, this can affect the type of mortgage you need.
For example, you may want to buy a home for an adult child or an older relative.
Some lenders have specific rules for properties occupied by family members.
Therefore, explain the planned living arrangement before applying.
What If You Want to Rent the Second Home Later?
Do not assume you can simply start renting it out.
Your mortgage may not allow letting.
You may need permission from the lender. Alternatively, you may need to change to another type of mortgage.
Your insurance and tax position may also change.
Therefore, check before letting the property.
What About Holiday Homes?
A holiday home that is only for your own use may be suitable for a second home mortgage.
However, a property that will be regularly let to paying guests is different.
In that case, you may need a specialist holiday let mortgage.
There may also be planning, licensing, insurance and tax issues to consider.
Therefore, be clear about how you plan to use the property.
Can You Get an Interest-Only Second Home Mortgage?
Some lenders may offer interest-only options.
With an interest-only mortgage, your regular payments mainly cover the interest.
Therefore, the original amount borrowed normally remains outstanding.
You will need a suitable plan to repay it.
Lenders have their own rules for interest-only mortgages. So, availability will depend on your circumstances.
What If Interest Rates Rise?
If you have two mortgages, a rise in borrowing costs can have a larger effect on your household finances.
For example, your main home mortgage and second home mortgage could both become more expensive.
Therefore, consider whether both properties would remain affordable if costs increased.
This is especially important when a fixed-rate deal is due to end.
Can You Remortgage a Second Home?
Yes, depending on your circumstances.
You may want to remortgage to:
- get a new rate
- change lender
- change the mortgage term
- borrow more
- change the mortgage features
However, check for Early Repayment Charges first.
Also, consider any fees linked to the new mortgage.
Second Homes and Retirement
Some people buy a second home before retirement.
For example, you may plan to use it for holidays now and live there later.
However, the mortgage term may continue into retirement.
If so, the lender may want to know how you will afford the payments in later years.
Therefore, your age, retirement income and mortgage term can affect the options available.
A Simple Second Home Example
Suppose you already own your main home.
You then want to buy a second property for:
£240,000
You provide a deposit of:
£60,000
Therefore, you need a mortgage of:
£180,000
The LTV is:
£180,000 ÷ £240,000 × 100 = 75%
However, the £60,000 deposit is not the full amount you will need.
You may also need money for:
Property taxes
Legal costs
Mortgage fees
Survey or valuation costs
Insurance
Moving or furnishing costs
Therefore, calculate the full cost before making an offer.
Before Applying for a Second Home Mortgage
It can help to check the main figures first:
1. Price of the second home
2. Deposit available
3. Mortgage needed
4. Loan-to-Value
5. Existing mortgage balance
6. Monthly payments on both mortgages
7. Property taxes
8. Mortgage and legal fees
9. Running costs for both homes
This will give you a clearer picture of the real cost.
The Key Point
Buying a second home can give you another place to live, work or spend your free time.
However, it also means taking responsibility for another property.
Therefore, look beyond the mortgage payment.
Consider the deposit, taxes, fees, insurance and running costs as well.
Most importantly, make sure the mortgage matches how you plan to use the property.
If you plan to rent it out, use it for holiday letting or provide it to a family member, tell the lender.
Choosing the right mortgage from the start can help avoid problems later.