Second Home Mortgage
Here’s how to boost your chances of getting a second home mortgage
Are you looking to finance a second home? Any residential property that you own but you don’t live in primarily is classified as a second property. For this, you need a different type of loan, or what is commonly known as ‘second home mortgage’.
What is a second home mortgage?
A second home mortgage is a type of home loan specifically designed to finance the purchase of a second property, which is typically not intended to be the borrower's primary residence.
This mortgage allows individuals to acquire a second home for various purposes, such as vacation getaways, investment properties, or providing a home for a family member, while still maintaining their primary residence.
However, this does not include homes that will be let out, since it’s considered a buy-to-let or investment home that needs a specific type of mortgage.
Is it hard to get a second home mortgage?
Getting a second mortgage is relatively cheaper than a secured loan. However, you need to be aware of the financial responsibilities you need to take. For example, you will be paying two monthly mortgages at the same time, and you need to pay stamp duty tax at the time of purchase, which depends on the purchase price and the location of the second home.
This is aside from the council tax once you own the property, although in some councils, you could get a discount.
Aside from this, you will also be required to pay for utilities and other expenses related to the upkeep of the property. Stricter affordability checks are required so you won’t have to put your current home at risk if you can’t afford the repayments anymore.
Your lender will also require you to submit proof that you have a home that you currently live in, explain the second property’s use, and agree to not having it rented out.
However, with careful financial planning, a clear understanding of your obligations, and a reliable lender, you can still acquire a second home mortgage.
Qualifying for a second home mortgage
Your finances will be the main factor for getting approved for a second home. A second home mortgage typically has a higher interest rate than a standard mortgage so it will cost you more than your first mortgage. Having enough disposable income will guarantee that you can afford the mortgage payments.
You will also be required to have a larger deposit of at least 15 to 20 percent of the property’s value. Lenders will likewise look into the remaining mortgage payments of your first mortgage, since you’ll be more capable of financing a second home if you’re closer to paying off your previous loan.
You should also be prepared for credit checks. Lenders will consider your credit score to see if you are credit-worthy to take on another loan.
Boosting your chances of getting a second home mortgage
There are many ways to improve your chances of getting a second home mortgage.
First, you need to check your finances and cut back on unnecessary expenses for the next three months. This will help improve your credit score.
Second, look into how many months are left to fully repay your first mortgage, if you have any. The sooner it is to complete, the higher chances of getting approved for a second mortgage.
Third, gather all documents that will prove your capability to pay for a second mortgage. You will be required to present this to your lender.
Finally, work with a mortgage adviser to compare second home mortgages across the entire market. They have the best knowledge of the industry and can connect you with the right lender offering the most competitive mortgage rates.
Frequently Asked Questions (FAQs) on second home mortgages
1. Am I allowed to have two mortgages?
Yes. However, this is subject to affordability and other factors that affect your financial eligibility.
2. Can I use a second home mortgage for a property that I plan to let out?
No. Anything that is intended as a rental property or for any commercial use is not allowed for a second home mortgage. Take note that buy-to-let mortgages need a larger deposit than a residential mortgage, which is applicable for your second home. You will also be required to submit a different set of financial and legal documents when taking a mortgage for such type of property.3. Can a home that is already mortgaged qualify for a second mortgage?
Most lenders won’t permit this. However, if you already have a mortgage with your existing lender, you may easily qualify for another mortgage.
4. Will a second home mortgage affect my first mortgage?
Not at all. If you cannot repay your second home mortgage, the lender will not put your other property at risk. Your second home mortgage is not directly tied to it.5. What is the minimum mortgage deposit required for a second home?
Typically, it is set at 10 per cent. This is lower than a buy-to-let second mortgage where a minimum of 25 per cent is commonly required.
6. What are the valid reasons for taking a second home mortgage?
A lender will often consider reasons such as buying a second home to be used as a holiday retreat, or for the residence of another family member, among others.
7. Is there an age limit to apply for a second home mortgage?
Some lenders have their age criteria relative to mortgage terms. That is, the older you are, the shorter that repayment period will be set.
8. Can I use standard home insurance for a second home?
Second homes have a different insurance policy. You need to check with your insurer for this.
9. Will I qualify for standard home insurance?
In terms of qualifying for standard home insurance, you’ll have fewer chances since most insurers regard buyers running the risk of leaving the property unoccupied for more than 30 days. For this, you will need a different policy.
10. Do lenders allow borrowers with bad credit to qualify for a second home mortgage?
Yes, this is possible. However, you need to provide proof that you can still afford the second home mortgage despite your financial situation. There will also be fewer lenders that will extend their consideration.
11. Do I need a mortgage broker for a second home mortgage application?
Definitely. A mortgage broker will be the best person to contact to shop around for the best mortgage rates. Consult with The Mortgage Hut team to work on your second home mortgage today.
Contact a mortgage broker today
The Mortgage Hut team provides expertise to help you assess your finances and offers tailored advice to increase your chances of remortgage approval. With access to diverse mortgage products, our advisers can guide you toward the best choices for your financial profile.