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Second Property Mortgages Vs Buy-to-Let
Contrary to popular belief, the second property mortgage isn’t a product in and of itself; this is because buying a second property with the intention of living in it is very different from buying one for investment purposes.
For example: if you want to buy a second property with the intention of letting it out, a ‘second property mortgage’ is not the right product. Instead, you should be applying for a specific ‘buy-to-let’ product.
If in the event that you opt for a second property mortgage and then later decide that you wish to rent the property out, you will need to seek legal permission from the lender (and incur admin charges along the way).
Second residential mortgages are the product that you will need when purchasing a second home. There are a number of reasons that you may wish to do this, including:
- Acquiring a holiday home for your family.
- Helping a relative onto the property ladder.
- Having a place to stay in the city during the working week.
In each of these situations, you will need to take out a second residential mortgage, aka second home mortgages.
Second Home Mortgage
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Second Residential Mortgages
Many lenders offer products designed for homeowners who are looking to buy a second home. While the basic concept of buying a second property is similar to a first home purchase, there are several factors that need consideration:
- Your finances will come under scrutiny during application: lenders must know that you are able to meet the repayment terms on your existing contract in addition to any second home mortgages.
- A bigger deposit may be required: most lenders will typically seek a larger deposit on a second property (often 15%).
- You will be expected to pay a larger Stamp Duty fee: the surcharge is currently at 3% on top of the fee already paid. So, if buying a second property that faces a 2% (£125,001 – £250,000) duty as standard, the fee will be increased to 5%. It is critical that you get an accurate stamp duty calculation from your solicitor
- Holiday homes to let require specialised mortgages: if you are planning to use your second property for short-term rentals to tourists, a specialised holiday let mortgage will be required (some lenders underwrite these agreements on a case by case basis, although there are general criteria guidelines that properties and buyers will typically need to meet).
For most homeowners seeking a standard second home, the second home residential mortgage route is the way to go.
HHH Mortgages can help you find the perfect lenders and deals to ensure that your second home purchase is as simple and straightforward as possible.
Buying a second home for investment purposes
Buy-to-let isn’t the only way to generate money from a property. You may also have plans to ‘flip’ the property or develop it before reselling at a profit. Either way, there are two finance products available to you in this situation:
- Bridging loans: these are ideal for properties that aren’t currently able to be mortgaged due to lacking facilities. Shorter-term loans do carry a high-interest rate, but they can be secured against the property and will be offset by the profits made by selling the property post-improvement.
- Development loans: these are ideal for property developers that are taking on major restoration tasks before planning to sell. They normally last for 12-18 months and you will need to chip in around one-third of the development costs yourself. Still, they can open the door to several opportunities.
Joint second property mortgages
Most lenders are happy to process joint applications for a second property. Better still, you will not be limited to buying the second home with the person you share the primary home with. This is particularly useful when helping a relative get on the property ladder.
In most circumstances, joint second property mortgages are limited to 2 applicants. However, some lenders may extend this to 4 applicants.
When taking out a joint mortgage on any second property, the product stays the same. So, if it’s residential, it will become a joint residential mortgage. Likewise, if you seek a buy-to-let mortgage, it becomes a joint buy-to-let.
Whatever you require, HHH Mortgages can help you to find the perfect solution for you.
Remortgaging to buy a second property
There’s no specific upper age limit as to when you can get a mortgage on a second property, although lenders have their own criteria. So, if you have equity tied up in an existing property, re-mortgaging to gain the deposit and free up more capital can support your application and allow you to secure the deal you need.
Of course, you still need to meet the repayments, which is why a broker can help you save time before you approach a lender.
Third, fourth or fifth property mortgages
If you have the finances and the incentive to buy multiple homes, there is nothing to stop you from doing it. Technically speaking, UK laws allow you to own as many homes as you like. Naturally, though, the more you buy, the harder it can be to secure finance.
Aside from being required to show lenders that you have the capital to meet repayment terms on all properties, you must also prove that the properties are all for residential purposes. You cannot buy a third or fourth home on a residential mortgage if you intend to rent it out. If this is your plan, you’ll need a buy-to-let contract. Again, it is possible to own multiple properties this way, and it opens up the potential for portfolio mortgages to finance your investments.
At HHH Mortgages, we can help you follow the right path for your second mortgage as well as any subsequent properties that follow. Simply get in touch with us today to find out more about how we can help.