Are you interested in owning a coastal retreat or a residence for your kids? No matter the reason behind your desire to purchase a secondary property, continue reading to learn all the essential information.

In the guide we will look at the types of mortgages available for second homes.

What is classed as a second home? 

In this article, the term “second home” refers to a property that you intend to use for personal use or for the use of your friends and family. It’s important to note that if you plan to rent out the property, you will need to take out a buy-to-let mortgage instead of a second home mortgage.

Reasons for a second home 

A second home can serve many purposes, and the reasons for getting one will depend on the individual’s specific needs and goals, here’s a few reasons.

  • Work purposes: Sometimes people purchase a second home if they work in a different city or state and need a place to stay during the workweek. This can save them time and money on commuting.
  • University home for children: Parents may choose to purchase a second home near their child’s university or college to provide them with a place to live during their studies. This can save on housing costs and provide a sense of security.
  • Property for an older relative: A second home can be purchased to provide a place for an older relative to live, either full-time or part-time. This can be especially helpful if the older relative needs assistance with daily activities or medical care.
  • Holiday home: A second home can be used as a vacation or holiday home, providing a place to escape and relax during time off work or school. This can be especially beneficial if the primary residence is located in a city or urban area.

Deposit for a second home 

The amount of deposit required for a second home can vary depending on a number of factors such as the lender, the property’s location, the applicant’s credit history, and the loan-to-value ratio. Generally, lenders require a larger deposit for a second home than for a primary residence.

Many lenders require a deposit of 20-25% for a second home mortgage, but it is possible to secure a mortgage with a smaller deposit. The minimum deposit for a second home mortgage typically ranges from 10% to 20%, but some lenders may require a larger deposit.

It’s important to note that a larger deposit can help you secure a better interest rate and may improve your chances of being approved for a mortgage. 

Will I be eligible for a second mortgage?

Just like with a first residential mortgage, lenders will take into account your income, expenses, and credit history to determine how much you can afford to borrow. 

However, for a second mortgage, they will also factor in the costs associated with your existing mortgage, as well as the running costs of the second property you plan to purchase.

In terms of deposit requirements, many lenders will require a deposit of 20-25% for a second mortgage, but this can vary depending on the lender’s eligibility criteria. Some lenders may be more flexible and allow for a smaller deposit, while others may require a larger deposit.

It’s important to note that lender criteria can vary significantly when it comes to factoring in the costs of your existing mortgage. 

Some lenders will treat your existing mortgage commitment as a monthly payment, while others will calculate it based on the total combined mortgages. Depending on how a lender calculates this, it could significantly impact your eligibility for a second mortgage.

Stamp duty implications 

If you own a second home in the UK, you may be liable to pay an additional stamp duty known as the “second home stamp duty” or “higher rates of stamp duty”. 

As of September 2021, the stamp duty rates for second homes in England and Northern Ireland are as follows:

  • Up to £500,000: 3%
  • £500,001 to £925,000: 8%
  • £925,001 to £1.5 million: 13%
  • Over £1.5 million: 15%

*** Please note that these rates are in addition to the standard residential rates, which are as follows: ***

  • Up to £125,000: 0%
  • £125,001 to £250,000: 2%
  • £250,001 to £925,000: 5%
  • £925,001 to £1.5 million: 10%
  • Over £1.5 million: 12%

So, for example, if you are purchasing a second home for £600,000, the stamp duty you would have to pay is:

  • 3% on the first £500,000 = £15,000
  • 8% on the remaining £100,000 = £8,000

Total stamp duty payable = £23,000

Please note that stamp duty rates and thresholds can change over time, and different rules may apply in Scotland and Wales.

Council tax implications 

If you own a second home, you will usually have to pay council tax on that property in addition to the council tax you pay on your primary residence. However, there are some circumstances where you may be eligible for a council tax discount or exemption on your second home, such as:

  • If the property is empty and unfurnished, you may be entitled to a 100% discount for up to 6 months.
  • If the property is a holiday home and is only occupied for short periods, you may be eligible for a 50% council tax discount.
  • If the property is used by a student as their term-time accommodation, you may be eligible for a council tax exemption.

It’s important to note that the rules regarding council tax on second homes can vary depending on the local authority

Remortgaging to buy a second home 

it is possible to remortgage your current home to release money for a deposit on a second home and this is a popular reason for releasing equity. However, whether or not you will be able to do this depends on your individual circumstances and the criteria of the lender.

If you have sufficient income and equity in your current home, you may be able to release enough money to buy the second home outright. Alternatively, you could release enough money to put down a deposit on the second home and take out a further mortgage to cover the rest of the purchase price.

Are the mortgage rates different for second properties? 

When it comes to mortgages for second homes, the mortgage rates are usually similar to those for main residences. 

However, it’s worth noting that the range of lender options available to you may be more limited due to affordability and criteria requirements. This may result in higher mortgage rates due to the reduced choice of lenders.

While the mortgage rates for second homes may be similar to those for main residences, there are some factors that can impact the rates you are offered. For example, if the property is located in an area with a high demand for second homes, the rates may be higher due to the increased competition for mortgages in the area.

Can you get an interest only second home mortgage?

It is possible to obtain an interest-only mortgage for a second home, subject to meeting certain criteria. Generally, a minimum of 25% equity in the property is required to qualify for an interest-only mortgage. 

However, there may also be other requirements, such as a minimum level of income and equity, and the need for a repayment vehicle.

A repayment vehicle is a plan or investment that is designed to pay off the mortgage at the end of the term. This can include investments such as stocks and shares ISAs, endowment policies, and pension plans. In some cases, the sale of the second home itself can also be considered as a repayment method.

How can Strive Mortgages help with a second home mortgage?

Strive Mortgages can help you navigate the complex requirements and criteria that lenders have for these types of mortgages. We can advise you on the deposit and equity requirements, as well as any restrictions that may apply, such as occupancy requirements.

Working with Strive Mortgages can help simplify the process of obtaining a second home mortgage, and increase your chances of securing a mortgage that meets your needs and budget.