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Second Property Mortgage Deposits

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 23rd August 2019 *

Do I need a deposit for a second mortgage?

If you’re in the market for a second home, you’ll first need a deposit for a second mortgage.

As a current homeowner with one property already under your belt, most lenders will see you as a valuable potential customer - provided you meet their criteria and can demonstrate that you’re capable of servicing two mortgages at once, and for the duration of the term of both.

Due to the higher increased risk involved in having more than one mortgage, a second home mortgage deposit will generally be a bit higher than what you might expect to put down on a first property purchase. Most are set at maximum 80% LTV, but some lenders will offer more generous LTVs depending on how much equity you have in your current property.

In this article we’ll look at:

Speak to a second property mortgage expert

If you are looking to buy a second property for whatever reason, the range of options and lenders is vast, so getting the right advice is essential for you to get the best deals for you.

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What is a second property mortgage?

To help direct you towards the right advice, it’s worth taking a quick recap of some of the terms used for different mortgage types. This article is about second property mortgages, which very simply relates to purchasing a second home.

If you’re looking for information on buy-to-let mortgages or other non-residential second mortgages, you’ll need our Buy-to-let Mortgages section.

“Second mortgage” can also refer to Second Charges or Second Charge mortgages, which are a type of secured loan taken out on a single property that already has a primary mortgage (the “first charge”) in place.

This is usually done to raise capital from a property, as an alternative to refinancing the first mortgage, or to taking out unsecured bank loans.

If you want to learn more about this fast growing sector, take a look at our detailed guide to second charge loans, secured loans or second charge mortgages. You can also find out where to speak to a specialist advisor about second charge mortgage rates or any other aspect of secured borrowing.

Why would I take out a second mortgage?

There’s a number of reasons why someone would take a second mortgage. For instance:

  • Work residence – In many instances it is when one applicant’s work is relocated, so a smaller property is bought to avoid the commute, and the family remain in the home.
  • Holiday home – Where the family want to purchase a home in the UK to use for holidays (a property overseas would involve a different setup).
  • Purchase for a relative – Second homes can be bought for relatives to live in, for instance for older parents or children at university to live in, where a buy to let mortgage would not be appropriate.
  • In a separation – when couples separate it can sometimes be hard for one party to afford a mortgage on their own, especially if one was the main breadwinner. In these instances, the party leaving the property can be trapped on the current mortgage and / or unable to buy a new property. Often, the solution can be for the main breadwinner to stay on the old mortgage and buy a new property as a second home.
  • Various other less common reasons.

How much deposit do I need for a mortgage on a second home?

How much deposit is required for a second house mortgage will vary from one lender to the next, as well as your personal creditworthiness. But there are three scenarios lenders consider that usually determine how much you can expect to put down for your second property mortgage deposit:

  • The deposit for the new property: a second home mortgage deposit can be calculated as a percentage of the loan to value (LTV) on the second property. Some lenders will only be concerned about this and don’t factor in the equity you have in your current main residence at all.
    You can typically borrow up to 80% of your second home’s value (i.e at least a 20% deposit).
  • The equity you have in your current home: Alternatively, some lenders take into account how much equity you have in your current home, and will only consider lending on a new second property if the equity you have doesn’t exceed a certain value, for instance 80% (although some can go up to 90% and some don’t care at all, as above).
  • Both the deposit for the new property and current home equity. Some lenders will take the mortgages on both properties into account, in order to ensure that their combined net LTV is below a certain threshold.

Hypothetical example

For instance, if the current property is valued at £200k and has a £180k mortgage (90% LTV) and the new property is being purchased for £150k with a 10% deposit, the combined LTV is 90%.

Lender Policy Calculations Second property deposit required
Only the new property needs to be at least 90% LTV £150,000 @ 10% £15,000
Existing property can’t be more than 85% LTV. If using this lender, the borrower would need to pay off 5% of their current mortgage first before buying the new property at say 90% LTV. £200,000 @ 15% = £30,000, so would need to pay off £10,000, then find the deposit for the new property £150,000 @ 10% £25,000
Some lenders will say they require a combined LTV of no more than 80%. £200,000 + £150,000 = £350,000 combined property value. £350,000 @ 20% is £70,000. Current equity £20,000, so new deposit is the remaining sum. £50,000

As you can see, the range of deposit required for a second property can be huge, depending on which lender you go to. Thankfully, there are lenders that can consider all manner of scenarios, so to get the right advice make an enquiry today and we can refer you to one of the specialists.

Other factors that can influence the deposit required for a second mortgages are:

  • The type of second property you plan to purchase
  • Your past and current financial situation, for example if you have any bad credit on your record as a borrower.

These details all need to be taken into account to estimate the size of your 2nd mortgage deposit.

We work with a number of experts in second mortgages and will help you to find the right advisor; a specialist who understands the complexities of the second mortgage landscape, and who will search the entire market to match you to a suitable mortgage for your second home, whatever your circumstances.

Is it possible to get a second home mortgage with 90% LTV?

Yes, it’s theoretically possible to get a 2nd home mortgage with 90% LTV but your choice of lenders will be thin on the ground as most cap loan to value at between 75% and 80%. Others will stretch to 85% under the right circumstances, and a minority go 90% and up.

The key to convincing these specialist lenders to offer you second home mortgage with a higher loan to value ratio than the norm is by ticking every box on their eligibility and affordability check list, and evidencing that you have significant equity in your current property. One thing to be aware of, though, is that second home mortgages with higher LTV also tend to come with higher interest rates.

Can I get a second home mortgage with 100% LTV?

The vast majority of lenders would be reluctant to hand out a 100% LTV mortgage of any kind, due to the level of risk involved. The most viable way to get a mortgage with no deposit is by having a family member or friend act as a guarantor.

With a guarantor mortgage, the friend or family member who is helping you out will either be required to put up a property they own as security, or place a lump sum in a savings account held by the lender. They will be unable to withdraw from this pot until a certain amount of the mortgage has been paid off.

Can I get a second mortgage with bad credit?

When applying for any type of finance, your credit record will have an impact on your eligibility, and can affect both available interest rates and how much deposit you’ll need for a second mortgage. So having certain adverse events listed on your file will limit the number of mortgages you have access to.

Thankfully, with the expertise and lending options available, for many it is possible to get a second property mortgage even with the following credit history issues:

  • Low credit rating
  • Late payments
  • Defaults
  • CCJs
  • Mortgage arrears
  • Debt management plans
  • IVA
  • Bankruptcy
  • Repossession

While having any of these events on your record will limit your search, some lenders can still accept the various different types of bad credit, depending on when it occurred and the overall picture painted by your present financial situation, income, size of deposit and the LTV on your current property.

The specialist advisors we work with will be able to help you with any queries you have relating to adverse credit when considering a second mortgage.

Can I get a second mortgage on any type of property?

Lenders differ in their policies towards various property types, and there are certain residential categories that tend to present more challenges than others when looking to buy a second house or flat.

Depending on the type of property, you may need more deposit, as generally the higher the risk, the higher the deposit. This can mean that although the lender may consider up to 90% LTV on a second home mortgage, if the property is considered more risk (see below), the restriction may be set to 85%, 80%, 75% etc.

Second mortgage if the property as a new build

For example, if you are seeking a second mortgage for a new build property, certain restrictions may apply. For instance, some lenders will accept new build houses but not new build flats. You’ll also find that most lenders have construction firms that they prefer to work with and some will only accept specific builders. Others will assess each application on a case-by-case basis.

Second mortgage if the property is non-standard

Other types of property that may present additional challenges to your second mortgage application include:

  • Ex local authority
  • Above commercial premises
  • Homes of unusual construction (e.g. thatched roof, concrete pre-fabs)
  • Studio flats or very high rise apartments
  • Hazardous materials (e.g. asbestos)

If the second property you wish to buy falls into any of these categories, it may be harder to access the most affordable second mortgage deals. If you have a query about a particular property type in relation to a second mortgage, the experts we work with can advise on how it may affect your eligibility.

Stamp duty on second homes

An important consideration when thinking about buying a second home is the potentially significant matter of tax on a second property.

Stamp duty on second homes in 2018 (SDLT) is set at 3% higher than it is on ‘first’ homes. NB this also means it is 3% on purchases up to £125,000, as the stamp duty exemption on this band of properties does not apply on subsequent home purchases, just as it does not apply to buy-to-let properties.

The table below compares stamp duty on second property compared with what is due on the purchase of a first property at different price bands. You might also want to use a stamp duty calculator on second homes.

Purchase Price band Stamp Duty rate (1st home) Stamp Duty rate (2nd home)
< £125,000 0% 3%
£125,001 - £250,000 2% 5%
£250,001 - £925,000 5% 8%
£925,001 - £1.5m 10% 13%
> £1.5m 12% 15%

(Source: HMRC)

Other tax on second homes

Remember you will also be responsible for paying council tax on second homes. However the good news here is that many councils offer a discount of up to 50% on furnished second homes. You’ll need to check with the council in the area where you are looking to buy to find out what discount you could claim.

It’s also worth bearing in mind for the future that sale of a second home is eligible for Capital Gains Tax, because it’s classed as an asset rather than your home.

Speak to an expert on second mortgages today

Whether you’ve got your sights on a holiday home, a city pied-a-terre or just a crash-pad to stay in during the working week, a second home is a hugely exciting purchase, and we want to help make your next step on the property ladder as smooth and as stress-free as possible.

To speak to a mortgage expert about finding the right second mortgage for your circumstances, call Online Mortgage Advisor on 0808 189 2301 or make an online enquiry, and a member of our team will be in touch shortly. We don’t charge any fees, you’re under no obligation to progress with any of our recommendations and your credit report will be unaffected.

Updated: 23rd August 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*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.

Find out more about the deposit you need for different mortgages

Mortgages and Deposits