Second Home Mortgage Guide

If yes, then you’ll probably need a mortgage on that property. Second property mortgages aren't generally that different from mortgages on main residences, but what’s available to you will depend on a few factors.

There are many reasons to purchase a second property. Maybe you want to help a relative onto the property ladder, or maybe you crave a much-needed holiday home for you and your family to enjoy. Or, perhaps you want to boost your family’s income with a buy-to-let property. Whatever your motive, you need to make sure that buying a second property is something you really can afford.

Chances are, unless you have the cash savings to buy a second home outright, then you’ll need a mortgage either on your current property or the property you want to purchase. The type of mortgage you’ll need will depend on what kind of property you’re buying and what you intend to use it for. That’s why we’ve designed a guide which explains your options.

A second property mortgage isn’t a specific product. Instead, to buy a second home you’ll need to take out a second residential mortgage on that property. It’s a little different if you want to buy a second property as a buy-to-let investment.

Let’s look at a couple of common scenarios.

Mortgages for Second Homes or Holiday Homes

If you wish to buy a holiday home to enjoy with your family and have no plans to rent it out regularly, you should be able to take out a straightforward, residential mortgage on the second property. The new lender will want to make sure you can afford both your current mortgage repayments as well as those on a new mortgage. Therefore, you’ll probably need a larger deposit – often a minimum of 15% of the property's value – and you might encounter slightly higher interest rates and fees than on your current residential mortgage, but that’s not always the case. You also have to pay additional Stamp Duty on Second Homes.

Alternatively, those planning to regularly let out a holiday home when it would be otherwise unoccupied need to apply for a specific, holiday home mortgage. Certain building societies and lenders will underwrite these mortgages on a case-by-case basis. If you want to let out your property as an Airbnb you need explicit permission from your lender.

Mortgages for Buy-to-Let Properties

If you plan from the outset to use your second property as a buy-to-let investment, then you should apply for a buy-to-let mortgage, not a second residential one. The rates are usually higher and you’ll have to put down at least a 20% deposit, but they can be interest-only rather than repayment and are specifically designed for this purpose.

Alternatively, if you buy a second home to move into and struggle to sell your previous property, you might want to consider converting your existing residential mortgage on the previous property to a consumer buy-to-let mortgage, also sometimes referred to as a let to buy mortgage. Let to buy mortgages are regulated as standard residential mortgages by the FCA and offer consumer protections to“accidental landlords”who rent out their homes from necessity and not as an income stream.

It’d be prudent to bear in mind that these buy-to-let mortgages aren't the same as standard residential ones. They often require higher initial deposits and charge higher interest rates, so you'll need to take this into consideration when deciding if it's a financially viable option for you.

Are you looking to purchase a second property purely as an investment opportunity? We already know that you need a buy-to-let mortgage for buy-to-let investments. But what about if you have other investment ideas? Maybe you want to improve or renovate a home then sell it on quickly for a profit. In this situation, you have 2 options.

¹Bridging Loan

Bridging loans are useful because you can secure them against property or land that’s unsuitable for a secured loan or mortgage.

Let’s say you buy a property that’s not currently mortgageable because it doesn’t have a necessary facility, like a bathroom. You could take out a bridging loan and secure it against this unmortgageable property to cover the cost of installing a bathroom, thereby making the property mortgageable whilst also boosting its value. You could then sell it for a profit.

A bridging loan can cover the cost of a single, specific project on a home, or a huge renovation. Bridging loans are a form of short term lending where the monthly payments are often rolled up onto the outstanding balance and are based on how you intend to repay the balance, as opposed to a normal credit score and income assessment. They're ideal for renovation projects that will take less than a year to complete.

²Development Loan

If you intend to buy a second property, and want to totally renovate it before selling it for a profit, then a development loan may suit you.

Development loans are for people who plan on undertaking big property improvement projects. You present your plan to the lender. If the lender agrees, they release money at different stages of the renovation process.

Development loans can often be up to 18 months as they're for bigger projects that take a bit more time to complete. They have relatively high interest rates because you’re essentially asking the lender to loan you money based on your ability to successfully renovate a property, not a property that already exists. You’ll also need to provide 30% - 40% of the renovation costs yourself.

Unless you have large cash reserves, chances are you’ll need a second home mortgage if you want to purchase a second property. And, as long as you can afford to repay both mortgages on a regular basis, you may be able to borrow a decent sum of money for the second home.

Bear in mind that with second mortgages, lenders often consider your finances from a stricter perspective, as it can add a significant financial burden. How much you can borrow will depend on your financial circumstances, such as your income, your dependants, and how much you have left on your first mortgage. You’ll likely need a larger deposit for the second home of at least 15%.

Technically, in the UK, you can have as many residential properties as you like, but lenders are wary of people using residential mortgages to buy properties that they subsequently rent out. Therefore, lenders often only allow a maximum of 2 residential mortgages – one for your main residence and one for a holiday home or a family member to live in. 

If you’re asking yourself: “Can I get a second mortgage?” you’ll have to decide which of your properties will be your primary residence and make this clear in your mortgage applications and to HMRC.

You’ll also need to give a good reason as to why you want to take out a mortgage on a second residential property - e.g. divorce, holiday home, etc. Lenders need to make sure they’re lending money for the purpose intended and that you’re not taking out a residential mortgage on a second property with plans to earn rental income from that residence.

Most mortgage products are available to more than one person. Maybe you want a mortgage for both you and the person you plan to share a holiday home with, or maybe a business partner wants to invest in a property with you. Whatever the case, the type of mortgage you need won’t change just because there’s more people involved. Instead, you take out a joint version of whichever mortgage you’re after, e.g. a joint residential mortgage, a joint buy-to-let mortgage, a joint bridging loan, a joint development loan etc.

Most lenders will only offer joint mortgages for second properties to 2 people. However, some lenders will allow up to 4, especially if you’re taking out a mortgage for an investment property. John Charcol can recommend lenders who offer mortgages to multiple people: contact us for more details.