Rules & Eligibility Requirements for Second Home Mortgage

Are you thinking of buying a second home? It isn’t as straightforward as buying your primary residence, but plenty of finance options are still available. Knowing the rules first is important.

In this guide, we’ll tell you everything you need about buying a second property and how to get the mortgage you need. For all our content on this topic, visit our dedicated second home mortgages page.

Can you get a second mortgage?

Yes, you can get a second mortgage, but this almost always depends on your finances. You’re more likely to be approved if you have a large disposable income or are close to paying off your first mortgage.

Lenders will examine your outgoings and credit history to determine whether they’re willing to lend you money. Due to the risk involved, the application criteria for a second mortgage are stricter, as lenders will need reassurance that you can meet the monthly repayments from this mortgage as well as your first mortgage.

How to get a second home mortgage

The process of getting a second mortgage is similar to your first. Many of the same steps apply, but there are often more stringent criteria, as lenders consider it more risky to lend to you when you already have a mortgage.

A brief outline of some of the most important steps is listed below:

• Contact your lender to see if they’d offer you another mortgage and check out offers from other lenders
• Identify a second home you’d like to purchase
• Prepare all the documents you’ll need, such as proof of income, proof of ID and three months of bank statements
• Get an agreement in principle (AIP) from a lender
• Seek out a solicitor to help with the conveyancing process
• Make a full mortgage application
• Receive your mortgage offer

Using a broker’s services can help smooth the process listed above. If you make an enquiry with us, we can match you with a broker who specialises in second home mortgages. This can significantly improve your chances of securing the best possible deal.

The broker we match you with will guide you through the following steps:

• Assessing whether you should release equity from your home for the deposit
• Finding the right lenders and rates for a second home mortgage
• Helping you secure the best deal and complete your application

What are the rules and requirements for buying a second home?

People choose to buy another property for various reasons, but you need to be aware of the rules before you take the plunge. There are specific regulations on what qualifies as a second home, tax implications and the type of insurance you need.

A mortgage broker who specialises in second home guidelines will be best placed to help, but here’s a quick overview of what you can expect…

What’s classed as a second home?

A second home is essentially any other property you own that you don’t always live in. It could be a holiday home, for example, perhaps a property you only live in during the week, one you’ve bought for someone else, or you part-own with a family member.

Below are two examples of what’s classed as a second home:

Stamp duty implications

You’ll need to pay an additional 3% stamp duty surcharge on any additional property you own. It’s based on a tiered system, so the higher the value of the property, the more stamp duty you’ll pay. Though you won’t pay a flat rate – it’s a progressive system so you’ll only pay a percentage on each portion of the property’s value.

Note that no stamp duty is payable on second properties worth less than £40,000. If you’re purchasing a property in Scotland and Wales, the bands are different as the respective governments set their own rates.

The bands are listed in the tables below:

Stamp Duty in Scotland

Stamp Duty is known as the Land and Buildings Transaction Tax in Scotland.

The different bands are listed below:

Stamp Duty in Wales

Stamp Duty is known as the Land Transaction Tax. The different bands are listed below:

You can use our calculator below to work out how much you could pay based on the property you’re looking to buy:

Council tax

Council tax implications may differ as well, but not always. You’ll still need to pay council tax on a second property, but some councils can offer a discount, the amount of which can vary.

This will depend on your particular council, so you must contact them to see if a discount is available.

Other tax implications

Second homes will be subject to capital gains tax (CGT) when they’re sold, but you’ll only pay tax on any growth in value. You’ll also have a CGT allowance to use, which can reduce the amount of tax you’ll need to pay.

This can be a tricky area, so it’s vital to speak to an expert broker and, ideally, a financial adviser who can offer more support.

Rules around insurance

You likely won’t be eligible for standard home insurance, largely because you may be leaving your property unoccupied for long periods – most insurers will only allow the property to be unoccupied for a maximum of 30 days – and so will need a specialist policy to suit your needs.

Eligibility criteria

Standard eligibility requirements will be broadly similar for second home mortgages as for primary residences, but there can be differences in things like deposits. You may also be expected to specify your reasoning for wanting a second residential mortgage, so be prepared to answer some additional questions.

Deposit requirements

You’ll usually be expected to put down a bigger deposit for a second home mortgage, with most lenders asking for a 15 to 20% deposit. As a general rule, the larger your deposit, the more likely you will be offered better rates.

You’re likely to need a deposit of around 25% if you’re looking at taking out a buy-to-let mortgage. Some lenders may even ask for a deposit as high as 40%, but this often depends on your circumstances.

Mortgage affordability

Bear in mind that your affordability profile will come into even sharper focus when buying a second home. This is because you’ll need to prove you can cover payments for two mortgages, rather than just one.

Lenders will consider your existing mortgage payments and all other related costs before deciding whether they can lend to you, and their affordability checks will often be stricter. Make sure to check your credit score, too, as if it’s worsened since you bought your first home, it could be more difficult to be approved for a second residential mortgage.

Try our mortgage affordability calculator below to get a rough idea of how much you could borrow…

You’ll be more likely to be approved if you’ve got plenty of disposable income or are close to paying off your mortgage on your first property.

If you’re struggling to repay your primary mortgage, you’ll likely find it very difficult to be approved for a second.

Are mortgage rates different for second properties?

Take a look at our rates table below to get an idea of what deals are currently available for second home mortgages. Please note that these rates are subject to change.

Please note that the above rates were accurate at the time of writing, but are always subject to change at the lender’s discretion. Speaking to a mortgage broker is the best way to find the most up-to-date deals.

Remortgaging to buy a second home

If your primary residence is mortgage-free or you have a lot of equity, you may consider remortgaging it to buy a second home.

This is a common way to raise capital for a new deposit and should pose few issues, provided you can still prove affordability.

Remember that these affordability checks will be more challenging than having only a single mortgage. If you’re going from being mortgage-free to having two home loans, it may take a bit of adjustment to work the repayments into your budget. Make sure you can prove it to lenders.

Can you get a second mortgage with bad credit?

Yes, it’s possible. There isn’t a huge difference between getting a mortgage for a primary residence with bad credit and getting a second mortgage under the same circumstances.

In addition to affordability, a mortgage lender’s main concern in such cases will be the type of bad credit recorded on your report, the amounts involved and when this event occurred. Some lenders will also consider why it may have happened, as there may be tangible reasons for it.

If you have bad credit, this could reduce the pool of lenders willing to consider your application, which can have an indirect effect on the interest rates available. The deposit requirements will likely be higher to offset the perceived risk.

Getting a second residential mortgage for a family member

This is very much possible and is a common reason people take out a second mortgage. Borrowers looking to take out a second mortgage for this purpose have more options as there are particular types of mortgage agreements that could help you out.

If you want to help a family member get on the property ladder, you can get a second standard residential mortgage, such as a second time buyer mortgage. This would essentially work like it would if you were buying a second property for yourself.

Another possibility is getting a joint borrower, sole proprietor mortgage, provided you are happy with an arrangement that offers you fewer ownership rights.

Get matched with a second home mortgage specialist

Having the right broker on your side can make all the difference when you’re buying a second home, and we can put you in touch with an expert to help. Just tell us a few details and we’ll scour our extensive network of brokers to pair you up with the one who perfectly matches your requirements, all for free and with no obligation.

Get in touch today – call us on 0330 818 7026 or make an enquiry, and we’ll get started.