Second Home Mortgages: How Do they Work?

There are countless reasons why you may want to purchase a second home, and therefore take out a second mortgage.

Before you go ahead, make sure it is something you can afford, and you’re aware of all the potential costs that come with second home mortgages.

What is a second home mortgage?

A second home mortgage is for those who already have a home, but wish to buy a second property. 

Second home mortgages are typically used for:

  • Weekend or holiday homes

  • Weekday based work properties

  • A helping hand to get a relative on the property ladder

Can I buy a second home with a mortgage?

Being accepted for a mortgage for a second home will largely depend on your finances. You’re more likely to be approved by lenders if you have a substantial disposable income or you’ve nearly paid off your current mortgage and have capacity to take on a second home loan. 

Lenders will assess your current record of repaying your current mortgage and they will carry out an affordability assessment to see whether you can comfortably pay for both mortgages. 

What is considered a second home for mortgage purposes?

A second is essentially a home that you don’t live in all the time, plan to rent out or use for any other commercial use. 

You can also buy a second home for your children, however, this may count as a second home for tax purposes. If you want to avoid this, it’s worth speaking to our professional mortgage advisors to explore other ways of assisting them, such as paying for their deposit. 

How many mortgages can you have?

While there is no cap on the number of residential mortgages you can have, you will likely be limited to the number of mortgages you can afford at one time. 

If you want to buy a second home or a holiday home abroad, you will have to find a lender who agrees that you can afford multiple homes. Unfortunately, it can be difficult to prove to lenders that your finances will cover the repayments for a second home. 

How to apply for a second home mortgage

Given the variety of reasons why you may be getting a second mortgage, the application process will vary. However, doing the following general steps will help to improve your chances of getting a second home mortgage. 

Arrange your paperwork 

The first step should always be arranging your paperwork. This includes the type of second mortgage you’re applying for and why you’re getting one. For example, if you choose a buy-to-let mortgage, you will need to show evidence for the projected rental income. 

Items such as payslips, bank statements and proof of address will be required for all applicants and scenarios. 

Run a credit check 

Having bad credit doesn’t automatically mean you will be denied a second mortgage. However, it’s a good idea to know what your credit report says about you. Having your report means you can resolve any inaccuracies on your file, which will improve your application. 

Speak with a mortgage advisor 

Getting the right mortgage for you at rates you can afford is difficult to do on your own. Speaking to specialist mortgage advisors, like the team at Go2Mortgage, can be extremely helpful here since they will have in-depth knowledge on this part of the market and can advise accordingly. 

If you are looking into second-home mortgages, contact our team today to discuss your options and find the best solutions.

What is the criteria for getting a second mortgage?

You will need a residential mortgage for a second mortgage, and many mortgage providers will also require you to:

  • Be between their age parameters (usually 21-70 years old)

  • Have at least 10% equity, although some lenders may expect 25-35% for second mortgages

  • Have no bad credit 

  • Have a suitable source of income

Lenders will determine how much you can borrow based on these factors, as well as what your outgoings are. 

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

Lenders will typically perceive second mortgages as higher risk, meaning you are likely to need a higher deposit. 

Typically, you will need a deposit of 15%-20%, but some lenders may want you to have even more than that. You may be able to find a lender below 15%, but they are uncommon and will usually have a stricter eligibility criteria. 

FAQs about mortgages for second homes

What is the difference between a home equity loan and a second mortgage?

A second mortgage is any mortgage that is subordinate to a first mortgage, and typically your first mortgage is one used to purchase the home. The home serves as collateral for the second mortgage. 

Essentially, you will be paying two monthly mortgage payments. If you default on either mortgage payments, the first mortgage lender will take priority over the second. 

A home equity loan is one that allows you to borrow against your home's value. When you take out an equity loan, you’re taking out equity value from the home. Lenders will typically allow you to borrow 80% of the home's value, less than what you owe on the mortgage. 

Home equity loans are received as a lump sum and many people use it for things such as home improvements and repairs, wedding expenses, holiday expenses, business purposes and so on. 

Is a second mortgage a good idea?

Taking out a second home mortgage is neither a good or a bad idea, and it really all depends on your own personal circumstances. 

As long as you can afford it and believe you have genuine use and purpose for a second home, then it may be a good idea. 

Can you have two residential mortgages?

Yes, you can have two residential mortgages but you will need to nominate one of the homes as your main home of residence.

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