How Much Deposit Do You Need For a Second Home Mortgage?

Buying a second home with a mortgage typically requires you to have a deposit. Here, we look at how big a down payment you need to buy an additional property and how the amount affects the interest rate you secure.

We also identify acceptable equity sources and how a broker could help you make your funds go that bit further. Finally, we investigate whether buying an additional property with no deposit at all is possible.

How much deposit do you need to buy a second home?

To buy a second home, a deposit of 15-25% is typically required, higher than for a first home due to increased lender risk. Deposit size depends on your credit history and income. Expect higher stamp duty for second properties and additional costs like legal fees, valuation, and possibly higher interest rates.

Some mortgage lenders will want you to have a deposit of more than 15-25%. For example, Harpenden Building Society only offers second home mortgages to clients with a 35% deposit.

Potentially, you could find a provider who will go lower than 15%. They’re uncommon, however, and you’ll need to meet other strict criteria to be eligible for a mortgage. A broker would be able to help you identify providers that may be a suitable option.

How your deposit amount affects your interest rate

As with standard mortgage applications, a bigger deposit improves your loan-to-value ratio (LTV), making lenders happier to extend a loan as their risk reduces. Plus, as you become a more attractive applicant with a better LTV, lenders are more likely to offer lower rates, too.

You, therefore, not only become eligible for more mortgages when you have a larger deposit, but you’ll also have access to a wider selection of better rates, making your repayments more affordable.

How a broker can make your deposit funds go further

Buying a second home can be trickier, especially as you need a better LTV than you usually require for your primary residence.

On your own, it can be tough to find a mortgage provider who will always accept all of your deposits from your particular source. Yet, it’s crucial to find a lender that does as it will bolster your equity amount and thus improve your LTV. Improving your LTV is key to securing the lowest rate possible and minimising the interest you have to repay.

A broker can identify the lenders that accept your deposits and suit your needs. Using a broker’s expertise and market knowledge can help you access a loan on your first application, reducing stress and any negative impact on your credit score.

Contact us today to connect you with a specialist second home broker.

Where can your deposit come from?

There are several sources that providers accept as deposits for second-home mortgages.

Generally accepted sources could be:

• Equity from your primary home. You can usually remortgage your residence to release funds for a deposit on a second home. Similarly, sometimes lenders accept funds raised from a mortgage of an additional property you may own, such as a buy-to-let. 
• Loan or gift from close relatives or friends. Immediate family or friends could give you the equity to purchase another home.
• Concessionary purchase. If a seller accepts a price below the true market value of a property, sometimes lenders are happy to use the difference as equity.
• Gift from an occupier not named on the mortgage. This situation occurs if a couple or two friends want to buy a property together. While only one is named on the mortgage, the other funds the deposit.
• Redundancy payment. Lump sums from a layoff can sometimes be used.

Sources that can often prove trickier to bolster deposits (though sometimes can be acceptable) are:

Due to the variations in acceptable deposit sources, this is where a broker can prove invaluable. They can suggest providers who do accept your deposit source. As a result, your LTV improves so that you can access better rates and terms.

Can you buy a second home with no deposit?

Technically, it can be done by using a guarantor mortgage. These are a specific type of mortgage product and could help you purchase another property even though you don’t have a deposit.

They work by a friend or relative ‘guaranteeing’ your mortgage. They do that by either putting their own home up as security or giving you a lump sum in a savings account that your mortgage lender holds. Your friend or relative cannot take money out of that account until you have repaid your entire second mortgage.

Get matched with a broker experienced in second home mortgages

Buying a second home can be complicated, so it’s a good idea to seek advice from an expert. Using a broker can help improve your chances of being approved the first time (so your credit score is not affected). Still, brokers can also help identify products with the lowest interest rate possible with your LTV ratio. They can, therefore, help save you money while ensuring you can borrow the maximum amount you require.

We offer a free, no-obligation broker matching service, where we connect you with an expert in second home mortgages. Contact us today or call 0330 818 7026 so they can help you maximise your deposit’s potential.