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Deposit for a second mortgage

Last updated on 12th August 2023 by Martin Alexander

If you’re thinking about getting a second property, you’ll need a second mortgage deposit to get started. The good news is because you already have a mortgage, you’ll have experience as a homeowner. Lenders will also factor this into their assessment, which can help secure favourable deals.

You’ll still have to meet certain criteria to get a second mortgage. Lenders insist that deposits for second mortgages are slightly higher than deposits for first mortgages. This is simply because having two mortgages puts more financial strain on borrowers.

Although there are many ways to get a great mortgage deal, the right deposit amount can make all the difference. Larger deposits are preferred by lenders, which typically give access to the best deals available.

How much do I need for a second mortgage deposit?

The amount of deposit you’ll need for a second mortgage will depend on:

  • Mortgage type (residential or buy-to-let)
  • Your conduct on your existing mortgage
  • Your credit history
  • Affordability (income and expenditure)
  • The property type (standard or non-standard construction)

Most lenders will only offer 80% LTV deals for second mortgages, so you should aim for a 20% deposit. That said, you may require a higher deposit amount depending on the rest of your application and the property itself. Furthermore, it may be possible to secure a second mortgage with a lower deposit.

Is your second mortgage for another home or a buy-to-let?

The amount you’ll need for a second mortgage deposit will largely depend on the purpose of your second property. For instance, most buy-to-let lenders typically require a 25% deposit. As a result, if you need a second mortgage to purchase a buy-to-let, you’d likely need 25% as a minimum.

There are buy-to-let lenders that may only require a 15-20% deposit, although these deals are rarely recommended. This is because the rates offered with such deals are usually higher than average. On the other hand, having a deposit of 40% or more can often unlock the best rates possible.

If your second mortgage is for a second home, you may only need a 15-20% deposit. Again, the rates may not be ideal. If so, you can always save a higher deposit before applying for a second mortgage.

Paying two mortgages each month is a large financial commitment, so it makes sense to shop around. Saving a higher deposit can also go a long way in helping keep your mortgage payments to a minimum.

Have you paid your existing mortgage on time?

If you’re applying for a second mortgage, your new lender will assess how you’ve repaid your first mortgage. A flawless payment record would indicate that you’re financially stable and a creditworthy applicant. Furthermore, your existing lender may even offer you a second mortgage. That said, it’s still worth shopping around, as there may be better deals elsewhere.

Lenders will also be interested in how much you owe on your current mortgage. This is so they can assess your overall liability. If you’re in negative equity, for instance, then it may become difficult to get a second mortgage.

If you’ve made late payments or have mortgage arrears, it can understandably cause lenders to question your application. This also brings us to our next point.

Will I need a higher deposit if I have bad credit?

If you have bad credit, you’ll likely need a higher deposit than normal. This is subject to lenders accepting you in the first instance. If your credit issues are quite severe, such as having a CCJ or you’re a discharged bankrupt, then you may be declined.

If you’re in this situation, then do make an enquiry. Our advisors specialise in mortgages that involve bad credit and have access to specialist lenders. If you risk trying to apply yourself and you’re declined, you’ll only damage your credit file further.

On the other hand, if you have a great credit score, lenders may see you as a creditworthy applicant. Depending on the rest of your application, you may be given access to the best possible deals. Nonetheless, it still pays to get professional advice so you can be sure you’re getting the best possible mortgage.

How does affordability affect the amount of deposit you’ll need?

Affordability is a key factor when applying for a second mortgage, especially if the second mortgage is for another home. Lenders usually calculate affordability by assessing your income and expenditures.

The amount you can borrow is typically between three to five times your income. Lenders then assess your outgoings, such as mortgage payments, other loan payments, and credit card debt, to calculate how much disposable income you have. They’ll then base their maximum loan amount on this assessment.

If a lender is happy to lend you £200,000, for instance, but the property you want to purchase is £250,000, you’ll need a £50,000 deposit. This would be a 20% deposit with an 80% LTV mortgage.

Lenders also calculate affordability in their own way. A different lender may only lend £150,000. Then you’d need a deposit of £100,000 to purchase a £250,000 property. This would be a 40% deposit with a 60% LTV mortgage. It’s clear how much you’d save going to a better-suited lender.

If your second mortgage is for a buy-to-let property, affordability becomes slightly easier. This is because your second property will generate a rental income. The potential rental income can then help your affordability in repaying the mortgage.

Why does the type of property I’m buying matter?

Lenders prefer to lend on properties built from standard construction, such as brick and tiled roofs. It becomes difficult if the property you wish to purchase is of non-standard construction.

Non-standard construction can include:

  • Timber frame homes
  • Oak frame homes
  • Steel frame homes
  • Concrete built properties
  • Alternative cladding
  • Flat roof
  • Thatched roof

If your second property is of non-standard construction, you’ll likely need a larger-than-average deposit. This is simply because lenders see non-standard construction homes as high-risk.

You may also need a specialist lender, depending on the rest of your application. If you find yourself in this position, do get in touch with our advisors.

Using equity as a deposit for a second mortgage

You may be able to remortgage to buy a second property. This can be done by releasing equity in your existing property, which can then be used as a deposit for your second mortgage.

If you don’t wish to remortgage, you can also use a second charge to release equity. This may be better suited when you want to release the maximum amount of equity you can.

Whether you remortgage or use a second-charge mortgage, you must have equity in your property. Furthermore, you’ll need to meet the expectations of the lender you approach.

In such cases, it’s highly advised to speak to a qualified advisor, as remortgaging to buy another home would involve having more than one mortgage.

Can I get a second mortgage with a 10% deposit?

In all honesty, getting a second mortgage with a 10% deposit is difficult. If you want to purchase a buy-to-let as your second property, you’ll more than likely need a 15% deposit as a minimum, and that’s only if you meet the rest of the lender’s criteria.

If you wish to purchase a second home, you may get a second mortgage with a 10% deposit. That said, there won’t be many lenders to choose from, and they may charge you higher than average rates. Furthermore, you’ll need to pass their criteria with flying colours.

From a financial perspective, the more you can save for a deposit, the better. If you have a 10% deposit or less, saving at least a 15-20% deposit may be more viable before applying for a second mortgage. You’ll not only have less to repay but also more lenders and better rates to choose from.

Expert advisors for second mortgages

Whether you’re looking for a second home or a buy-to-let, our advisors can help. We’ll assess your overall financial profile to establish the best course of action.

Getting the best rate on one mortgage can be difficult enough, but trying to do it twice at the same time is extremely difficult. We’ll make sure that lenders are suitable and offer the best deals you qualify for.

About the author

Martin Alexander
Senior Mortgage Advisor

Martin is a senior mortgage advisor who has held a CeMAP qualification for over 15 years while completing an MBA in Global Banking and Finance.