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Mortgaging a second home
There are several things to consider when applying for a second home mortgage. We outline everything you need to know when borrowing money for a second home, from stamp duty to permitted use.
If you're ready to apply for a second home mortgage, compare the best deals in the same place and get a mortgage in principle in minutes with Teito! We work with hundreds of lenders to find your perfect mortgage.
Can you get a second residential mortgage in the UK?
Technically, in the UK, you can have as many residential mortgages as you like, but in reality, it's not typically that straightforward. Lenders will need reassurance that you are only using the property as a second residential home and are not using it for commercial gain.
Suppose you're using a second property for anything other than a personal holiday home. In that case, the likelihood is that you will be looking for a buy to let arrangement rather than a residential mortgage.
Owning a second property
Owning a second property not only depends on your current mortgage but about your personal circumstances too. You will need to prove that you can afford all of your mortgages, both repayments and costs.
Before you even start thinking about applying for a second property mortgage, lenders must be satisfied that any property you are borrowing is not being used for any business activities. This will include any rental income you are earning from it.
Holiday Home vs Holiday let mortgages
If you're looking to get a residential mortgage for a second property to be used as a holiday home, you must understand what is classed as a holiday home and what isn't.
Getting a second mortgage for a holiday home isn't the same as getting a buy to let mortgage. It's not just about whether or not it can be rented out - buy to let mortgages typically require quite extensive criteria which you won't need if you're looking for a residential mortgage instead.
Holiday home residential mortgage
If you get a second mortgage to buy a holiday home, you can't use it to generate any rental income, whether long term or short term. This includes any short-term rental such as Airbnb; if you're looking for this type of property, then you'll likely be offered a different type of mortgage on a buy to let basis.
For a holiday home mortgage, mortgage lenders will be looking for reassurance that you can afford the mortgage repayments without any rental income, so your personal finances are of more interest than for a buy to let mortgage.
Holiday let mortgage
If you're getting a second mortgage to buy a property as a holiday let with the intention of renting it out either on a short or long term basis, that would be classed as a buy to let mortgage.
Buy to let mortgages typically come with different criteria as residential mortgages; for example, you'll generally need a larger deposit, and demonstrate that the property is an excellent financial investment when it comes to rental income.
Eligibility criteria for second home mortgages
When you're applying for a second mortgage, lenders will apply strict criteria, and they'll need to know precisely what you will be using the property for.
If you're mortgaging a second property, lenders will need to know that you can afford both sets of mortgage repayments, as well as any other costs, for example, unforeseen repairs that you might need to carry out on either property. This means that your income and financial commitments will be under scrutiny.
You'll also need to have a good credit score - this will be checked as part of the application process, and if your score is low, you may not qualify for a second mortgage.
What income will I need for a second mortgage?
There is no set income that you'll need to qualify for a second mortgage, however, lenders will be looking for reassurance that you can afford both sets of monthly repayments.
Suppose you're looking at a second home mortgage. In that case, lenders will expect to see that you have plenty of disposable income (which is the amount of money left after your monthly outgoings) after you have made your current mortgage payments. This means that you'll need to consider both your income and your expenses if you are looking to take on a second mortgage.
The criteria are different when it comes to buy-to-let mortgages, as this will depend on the rental yield as well as your income from employment.
How much deposit do I need for a second home?
Mortgage lenders will typically be looking for a deposit of at least 15% when it comes to a second mortgage. Monthly mortgage repayments will be a lot more expensive if you have a smaller deposit, so lenders will want to see that you're not going to struggle with them.
However, there are some cases where a small deposit is accepted for second mortgages - this can often depend on the lender and your personal circumstances.
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Can I get a second mortgage if I have bad credit?
Getting a second mortgage with bad credit is likely to be a challenge. Lenders will be looking for reassurance that you are a reliable borrower who can afford to make repayments on both your existing mortgage and your new second property.
When it comes to your credit score, whether or not a lender will consider your application depends on the age and severity of the credit issue. If your credit file could do with some improvement, there are a few steps you can take, such as paying all credit commitments on time and making sure you're registered on the electoral roll.
It also helps to demonstrate that you're a reliable borrower who can afford two sets of mortgage repayments at once, which means making sure that your current financial commitments are under control and kept up to date.
We would recommend that you consult an experienced mortgage broker who will be able to help boost your chances of approval and find the right lender for you.
Stamp duty for second homes
If you're buying a second property, either for commercial or residential purposes, you will be paying a higher rate of stamp duty in comparison to your first home.
In September 2022, changes were announced to the way in which Stamp Duty is calculated. These changes will mean that, for most people, the amount of Stamp Duty they pay will be lower than it would have been under the old rules.
The tables below show the new rates of Stamp Duty:
Stamp duty in England and Northern Ireland (from September 2022)
Portion of Property Price | Tax Rate (Primary residence) | Tax Rate (Additional Property) |
---|---|---|
Up to £250,000 | 0% | 3% |
Between £250,001 to £925,000 | 5% | 8% |
Between £925,001 to £1.5 million | 10% | 13% |
More than £1.5 million | 12% | 15% |
First Time Buyer Stamp duty in England and Northern Ireland (from September 2022)
Portion of Property Price | Tax Rate (Primary residence) |
---|---|
Up to £425,000 | 0% |
Between £425,000 to £625,000 | 5% |
More than £625,000 | If the price is over £625,000, you cannot claim the relief. |
Stamp duty in Wales (from 10th October 2022)
(Unlike England, Wales has no special threshold for first-time buyers.) | ||
---|---|---|
Portion of Property Price | Tax Rate (primary residence) | Tax Rate (Additional property) |
Up to £225,000 | 0% | 4% |
Between £225,000 to £400,000 | 6% | 10% |
Between £400,000 to £750,000 | 7.5% | 11.5% |
Between £750,000 to £1.5 million | 10% | 14% |
More than £1.5 million | 12% | 16% |
Stamp duty in Scotland
Portion of Property Price | Tax Rate (primary residence) | Tax Rate (Additional Property) |
---|---|---|
Up to £145,000 (£175,000 for first-time buyers) | 0% | 4% |
Between £145,000 to £250,000 | 2% | 6% |
Between £250,001 to £325,000 | 5% | 9% |
£325,001 to £750,000 | 10% | 14% |
Over £750,000 | 12% | 16% |
Affordability criteria for a second home mortgage
When it comes to second home mortgages, lenders will take a different view of your financial situation to when you're applying for a first home mortgage.
The affordability criteria that lenders must follow, state that they need to be able to assess whether you can afford the repayments on your current and future mortgages without becoming financially unstable.
To do this, they'll take into account both your income and expenses, including any other payments that you have to make.
For example, if you're on a high-interest credit card or have an overdraft with your bank, your lender will need to be aware of this as they'll consider this when working out whether or not you can afford to buy a second property.
Buying a second home as an investment
If you're looking to get a second mortgage for an investment property, then this will not be a residential mortgage. If this is the case, depending on the situation you will either need to apply for a commercial mortgage or buy to let mortgage.
The difference between these two types of mortgage is that commercial mortgages are meant for properties that will be rented out for business purposes, whereas buy to let mortgages are designed solely for residential property which you will be renting out on a long-term basis.
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Last updated 21 February 2024