Pete Mugleston | Mortgage AdvisorPete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.
Updated: 3rd July 2019* | Published: 7th February 2019
We hear from lots of customers who want to know about mortgage rates on second homes, specifically how lenders decide which ones to offer and how to get the best ones. These are two of the most common questions we hear on this topic, but we’ve received dozens of other queries too, so we’ve compiled this guide to mortgage rates for second homes.
How do lenders calculate mortgage rates for a second home purchase?
Mortgage interest rates on second homes are assessed in much the same way as mortgages for primary residences. The lender will decide which rates to offer based on the amount of risk they think the deal carries, and they will decide this by looking at the following factors…
As a general rule, second home mortgages have higher deposit requirements than primary home mortgages as they usually come with a loan to value (LTV) cap set at 80%. This means you will need a deposit of at least 20%, but if you’re able to put down more, the mortgage provider may be more willing to offer more favourable second house mortgage rates.
Borrowers who hold substantial equity in their current home may also stand a better chance of landing the best second property mortgage rates as this diminishes the level of risk too.
You can read more about second property mortgage deposits here.
Your credit rating
Having bad credit on your file often means a specialist lender is required to get the best deals, and this is certainly true when it comes to second home mortgage interest rates.
Adverse credit can be more restrictive where second homes are concerned, as the level of risk is often higher due to the borrower having two mortgages to service.
That said, the expert advisors we work with have access to specialist bad credit lenders who may consider taking the age and severity of your credit problems into account when deciding which interest rate to offer for your second home mortgage.
You can read more about bad credit mortgages, or better yet, make an enquiry to speak with one of the advisors we work with about the rates you’d qualify for.
Getting the best mortgage rates on a second home can be trickier if you’re buying on in later life, due to your choice of lenders being somewhat slimmer.
Certain mortgage providers have upper age limits and won’t lend to anyone over 75. Others stretch to 85 and a minority will lend to a retiree of any age, as long as they’re confident the customer can keep up with their mortgage payments during their twilight years.
The property type
The mortgage rate you’re offered for a second home could also be impacted by the type of property you’re buying. To be specific, a specialist lender might be required if your second home includes non-standard construction, such as a thatched roof or timber frame.
You can read more about non-standard construction mortgages here.
Income and affordability
Affordability checks can be more stringent for second home mortgages because the lender needs to be confident that you’re capable of services two mortgages at once, for the duration of their terms. Most providers cap their lending based on 3-4x the borrower’s annual salary, some stretch to x5 and a minority x6, under the right circumstances.
The more confident the lender is that your declarable income will cover the mortgage payments, the more likely they are to offer their top second home mortgage rates.
Is there a mortgage rate difference for second homes?
While the interest rate for a mortgage on a second home is assessed in much the same way as for a primary mortgage, interest rates can be higher for second homes as some lenders will be more cautious where a borrower with two home loans on their plate is concerned.
Does the term length affect 2nd property mortgage rates?
The answer is generally a no. A 30 year mortgage on a second home would usually come with the same rates as a 15 year mortgage on a second home if the same applicant was applying for them. Term length is not typically a factor residential lenders consider when deciding which rates to offer, but it will affect the overall cost of a second home mortgage.
Taking a mortgage over a shorter term means higher monthly payments, while stretching the loan out over a longer period means paying less each month but more interest overall.
So, if you’re looking for a cheap second home mortgage, this is something to consider.
What are the current mortgage rates for second homes?
We often hear questions along these lines, and we always tell customers that providing them with a specific interest rate percentage is pointless, as rates are forever in flux and can change at any time. The second home mortgage rates today might be different tomorrow.
The most important thing you need to know about 2nd home mortgage interest rates is how to make sure you get the best ones available. Read on to find out…
How do I get the best mortgage rates for a second home deal?
The key to getting the best mortgage deal for a 2nd home is by meeting the eligibility requirements at as many lenders as possible (see the section titled ‘How do lenders calculate mortgage rates for a second home purchase?’ at the beginning of this article for general criteria information) and having access to the entire market.
Approaching multiple lenders is not recommended as this is time consuming, plus making too many applications can negatively impact your credit report. Using rates tables online is also not advised, as these often give prominent placement to sponsored products and won’t necessarily show you deals that are tailored to your needs and circumstances.
Using a whole-of-market broker is the right way to ensure you end up with the best mortgage deal to buy your second home. The advisors we work with can offer you expert advice and pair you with the lender best positioned to provide favourable rates.
What is the best way to compare second home mortgage deals?
As we mentioned in the previous section, online rates tables are not the best way to carry out a second home mortgage comparison. Many of them give prominent placement to sponsored products and don’t tailor the deals they flag up to individual customers.
A better option is to make an enquiry and have one of the whole-of-market advisors we work with search the entire market and compare deals on your behalf. Not only can they provide you with bespoke advice, they will introduce you to the lender best positioned to offer favourable rates to a customer with your specific needs and circumstances.
Speak to an expert on 2nd home mortgage rates today
If you’re still wondering how to find the best second home mortgage deals and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.
Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. They can offer you bespoke advice and connect you with the best mortgage lenders for 2nd home borrowers - we don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.
*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA.Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes.
The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete's presence in the industry as the 'go-to' for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
Read more about Pete here...