Last Updated on 24th August 2020
If you’re thinking about purchasing a second home or perhaps a buy to let, it’s likely that you’ll need a second mortgage. We’re often asked whether it’s possible to have two mortgages and the short answer is yes.
You may want a second mortgage to purchase a second home, holiday home or a buy to let. If you have disposable income each month, getting a second mortgage could be a smart move. Property values typically increase over time and lenders continue to pour millions of pounds into mortgages each year.
Getting a second mortgage isn’t something you should rush. One mortgage can be risky, two mortgages are double the risk. Furthermore, starting your mortgage in the correct way can make all the difference.
Important: If you want a second mortgage to release equity, then you’ll need a second charge mortgage. A second charge mortgage and a mortgage for a second property are different. You can read our article on second charge mortgages here.
If you do want to purchase a second property, then you’re already in the right place.
Read our guide for more information and make an enquiry with one of our specialists when you’re ready.
What is a second home mortgage?
A second home mortgage is simply a mortgage for a second property. The second mortgage is then secured against your second property for security, much like your first mortgage. In fact, there’s little difference in first and second mortgages in terms of how they work.
Second home mortgages can also be referred to as second property mortgages. This is because your second property doesn’t necessarily have to be an additional home. You may instead be purchasing an investment property, such as a buy to let or holiday home.
Mortgages for second properties are different from second charge mortgages. Confusing, we know. Although a second charge involves taking a second mortgage, it doesn’t involve purchasing a second property. The purpose of a second charge is solely to release equity.
A second mortgage is also different from a remortgage. A remortgage is where you’d switch lenders to replace an existing mortgage with a new one. This is usually done to get a better rate but doesn’t involve purchasing a second property. That being said, you may be able to remortgage to buy a second property. This can be done by releasing equity in your current home which can then be used as a deposit.
How to get a mortgage for a second home
Getting a mortgage for a second home largely depends on your affordability. Lenders will be aware that you already have a mortgage, so this can work both for and against you.
For instance, lenders are able to assess how you’ve been repaying your current mortgage. Having a great track record can certainly help. On the other hand, you’ll need to meet the affordability of paying two mortgages, which can be difficult.
Affordability is calculated on income and expenditure. If your monthly expenditure is high, then meeting affordability can be difficult. It’s a good idea to minimise your monthly outgoings as much as possible before applying.
Lenders will also look at what you’ll use your second mortgage for. If you’re going to purchase a buy to let, then affordability is focused mainly around rental income, rather than income from employment. The majority of lenders require rental income to cover 125% of the mortgage payments.
If you want to purchase a second home, then lenders will dig deep into your affordability. This is because your second home won’t be generating you any additional income. As a result, lenders will focus on whether your existing income is adequate for having two mortgages.
Your second mortgage will be for a buy to let
If you’re using a mortgage to buy a second home, lenders will expect you to live there. If your second property will be used for buy to let purposes, then you’ll need a buy to let mortgage.
We understand that plans can sometimes change. If you intend to live in your second home but then decide to rent it to tenants, you’ll have to inform your lender. Furthermore, your lender will need to provide you with consent and they may charge you a fee to do this.
If you’re going to use your second home so that a family member can live there, you’ll need a regulated buy to let mortgage. Trying to get a regular buy to let mortgage won’t be possible.
You may want a second mortgage so that you can move to a new home before selling your existing one. In circumstances such as these, you’ll have two residential mortgages, but will be only living in one property.
You can also let your empty property out so that you can at least cover the mortgage for it. This is more commonly known as a let to buy mortgage.
How much deposit do I need for a second mortgage?
The deposit amount you’ll need for your second mortgage depends on whether you’re buying a second home or a buy to let property.
If you’re buying a second home, you’ll likely need a 15% deposit. This is usually the bare minimum. Using a larger deposit can unlock better deals and can make getting a second mortgage easier. The reason lenders insist on a 15% deposit minimum is because of the risk involved in having two mortgages.
If you’re purchasing a buy to let property, it’s likely you’ll need a 25% deposit. There are lenders that may offer mortgages with 15%-20% deposits, however, they often come with higher rates and as a result, are rarely recommended.
Stamp duty and second mortgages
Buying a second home in England or Wales will incur stamp duty charges plus an additional 3%. Even if you’re buying a second home to live in, you’d still have to pay the additional 3%.
Additional rate stamp duty is charged on any second properties, irrespective of whether it’s residential or for investment.
You can apply for a refund on any additional stamp duty you’ve paid if your second home becomes your main residence. That being said, you must sell your other property within three years of buying your second home.
How many mortgages can a person have?
Typically, lenders only allow homeowners to have two residential mortgages at one time. This is because they want to minimise borrowers using residential mortgages as investment properties. Furthermore, there isn’t any real logic on why someone would need several homes to live in.
Owning two homes can allow you to have one main residence and a holiday home for instance. There are other situations which may warrant owning two homes, such as separating from a partner or relocating for work. Your lender will also ask the reasons for wanting a second home.
It’s possible to have multiple buy to let mortgages. Some landlords are even able to take portfolio mortgages, which allows one monthly mortgage payment instead of single payments for each property. Experienced landlords are able to take more mortgages as they expand their portfolios. Nonetheless, lenders often have a maximum limit that they can lend to any given individual or limited company.
Using a broker for a second mortgage
It’s recommended to get a professional opinion before getting a first mortgage, let alone a second one! Although you may understand the mortgage process better than first-time buyers, the process for getting a second mortgage is different.
Assessments for second mortgages go under the microscope as they’re high risk compared to single mortgages. Our advisors submit second mortgage applications almost every day so we know exactly how to get the most success.
We’ll calculate the best deals you’ll be eligible for. and do the hard work for you. You can make an enquiry below to get started.