Mortgage Affordability for Second Homes

A second home is one that you don't use as your primary residence; it’s not the place you live in most of the time. This could be anything from a vacation home to another residence owned and used exclusively by the borrower or their family.

Yes, there are certain rules and regulations that you need to be aware of when taking out a mortgage for a second home, including the following.

A Second Home Is Not a Buy-to-Let

When you take out a mortgage to buy a property, your intention for that property must be made clear to the lender as it affects the kind of mortgage you need. If you buy a second home you intend to use as a family holiday home, then you’ll require a second home mortgage. If you buy a second property that you intend to rent out and earn income from, then you’ll require a buy-to-let mortgage. If you take out a second home mortgage and decide to start renting it out, you’ll be in violation of your mortgage agreement.

In the event that you buy a second home with the intention of using it as a second home, but later decide you want to let it out, you’ll need ask your lender for consent to let which they don’t have to grant. If they decline your request for consent to let, then you may need to consider remortgaging onto a buy-to-let product.

Your Lender May Allow You to Use Your Second Home as a Short Term Holiday Let

If you have a second home mortgage on your property and decide you’d like to let it out on a short term basis – i.e. for less than 7 days for up to 90 days a year – then you shouldn’t need to change mortgage products or get a specific holiday let mortgage. Make sure you check with your lender about their conditions before you do this.

Stamp Duty Surcharge

You’ll have to pay an extra 3% Stamp Duty Surcharge when you purchase a residential property that’s not your main home, on top of the regular Stamp Duty Land Tax (SDLT). Whether you're buying a new or existing property, it's important to include this additional fee in your budget so you have a realistic total purchase cost. Properties worth less than £40,000 are exempt from the Stamp Duty Surcharge.

You’re not required to pay the 3% extra SDLT if you're buying a property as a replacement for your primary residence that you’re selling at the same time. If you end up buying your new property while still owning your previous one – perhaps because you’ve struggled to sell the previous one – then you’ll be charged the Stamp Duty surcharge on the new property. Fortunately, if you’re able to sell your former home within 3 years, you should be able to apply for a refund on the surcharge.

Tax Rules

If you're buying or selling a second home, it's important to familiarise yourself with the applicable tax rules and regulations. Note that you'll need to pay Council Tax for a second property. However, some local councils may offer discounted rates on this tax, so it's worth checking with them directly to find out what discounts may be available.

When selling a second home, you'll need to pay Capital Gains Tax (CGT) on the profit you make from the sale. How much CGT you have to pay will depend on your income including this profit. You can use our CGT calculator to work out how much CGT you may have to pay on a second home.

Insurance Restrictions

Most standard home insurance policies only permit a maximum of 30 days’ inoccupancy. If you're leaving your home unoccupied for extended periods of time, chances are that you may need to take out additional insurance to have adequate coverage. If you're applying for a mortgage, most lenders will require evidence that you have adequate insurance in place before they'll approve a loan. We can help you arrange suitable second home insurance, simply get in touch with us on 0330 433 2927.

If you own a mortgage-free home or have plenty of equity available, refinancing your primary residence to purchase another home could be an option.

This is often done to secure money for a larger deposit on a second property, which can help you secure a better rate. Nonetheless, you'll have 2 mortgages to pay each month. When you approach a lender about remortgaging to release equity for this purpose, they will consider the cost of running both households and paying both mortgages to see if it’s affordable.

If you’re unsure what the best option is for your situation, speak to one of our mortgage advisers.

It’s possible to help a relative get onto the property ladder via a second mortgage if you opt for a joint borrower sole proprietor setup. This is where the relative, for example your child, takes out a mortgage with you, the parent. The child is the sole proprietor of the property but you support the application as a joint borrower, helping them access a bigger mortgage.

Speak to one of our advisers on 0330 433 2927 if this is something you’d like to learn more about.

If you're looking to make some extra money from your property, renting it out as a holiday home on a short term basis may be an option. While not all mortgage lenders are open to this idea, some may allow you rent out the property for up to 7 days at a time, up to a total of 90 days a year. To let out your property for longer periods on a holiday let basis, you'll need a holiday let mortgage.

When searching for a second home mortgage, it's important to understand your own personal financial situation and your intention with the property you're looking to buy. Knowing what kind of deals are available in the current market and shopping around are key steps in securing the best rates.

John Charcol can help you do just that. As independent mortgage brokers, we have access to the whole mortgage market and can help you compare the best deals. We can also guide you through the entire application process and help you work out budgeting when it comes to ongoing payments and other associated costs. With our expertise, you can be sure to secure the best second home mortgage rates available.

If you'd like to be in the best position possible before coming to us, you can also ensure that the following is in order:

• Your credit history and score is up to date, accurate, and as healthy as possible
• Your financial documents are in order
• You have a deposit of at least 15% of the property's value
• You have proof of identity and address

By having these things in order, you can be sure to get the best second-home mortgage rates possible. Contact us today on 0330 433 2927 to learn more about our services and to find out how we can help you secure a competitive mortgage rate for your new property.