Second Home Mortgage

How much is the deposit for a second home? Can I buy my second house with a 10% deposit?

This is another one that does vary in time, but generally the minimum deposit is 10% for a second home. If you’ve got one property already and you’re running a second, that’s more risky for a bank. If you lose your job or your situation changes, you’ve got two mortgages piling up quickly – you would hit the wall a lot faster.

So lenders typically want larger deposits. With a 25% deposit you become the lowest risk to a bank, because house prices have never gone down more than 25% in any one cycle. That’s why banks want a 25% deposit on anything risky, including a second home.

But 10% is generally the minimum. For every additional 5% deposit you put down, the rate gets lower until you reach a 40% deposit – you then access the lowest rates on the market. In this space, you’d have more lender choice and much lower interest rates.
Something we advise clients is that if your first home has a very small mortgage against it, sometimes it’s better to increase the mortgage on that one to put down a larger deposit. There are little variances we can play with. Sometimes it works, sometimes it doesn’t, but we will advise in the round.

How much can you borrow on a second mortgage in the UK?

As usual, it depends. That’s the answer to everything. As a rule, though, most lenders in the land would give you around 4.5 times your income, whether that be single or joint. There are different types of assessment – if you’re employed it’s easier, but you might have bonuses. It can be a bit tricky if you’re self-employed. We do have more on these areas on our website, so if that applies look at the specific pages around bonus income, commission income, and self-employed.

Lenders may give you 5.5 times your income if you earn around £75,000 to £100,000. Some lenders might go up to 5 or even 5.5 times income and, maybe some might give you six times. That does change in time, but it’s something to bear in mind.

The one caveat is that if you’re deemed a high net worth individual, with income over £300,000 or with over £3 million worth of net assets, we don’t have set rules. A bank can just take a view and decide whether you can afford this or not.

Could I get a joint second mortgage?

Yes, you can. Everything I’ve just mentioned applies whether it’s single or joint. Where it can get a bit more complicated is if one buyer is employed and one is self-employed. We have to carefully balance that.

But fundamentally, it’s no different. You can’t borrow more or less in terms of those multiples. If you had £100,000 income on your own, you could borrow the same amount as if you reach that income jointly. There’s no difference.

Can I get a mortgage to buy a third property?

It doesn’t come up very often, but theoretically yes. Perhaps you have a very high income, you’ve got a main residence and a pied-a-terre near the office, and now you want a holiday home somewhere. If you can afford it, why not?

To afford three mortgages you need to have a fairly sizable income. But as long as we can navigate all the things we’ve spoken about there’s no practical reason why not. A lender would need the rationale, however.

For example, perhaps you want three properties in London – they will ask why. You might have two children and you want to buy them a property each. That’s fine. What lenders are worried about is whether you’re planning to rent the properties out.

But as long as there’s a logical reason that we can evidence, it would be OK. The purpose and the location of the properties will be key in understanding what you’re doing and why.

What are the extra costs of buying a second home?

From a mortgage perspective, they’re all the same. Most lenders offer a free survey these days. We’d always recommend that you get your own, but a basic survey tends to be free depending on how much you want to borrow.

Some lenders charge fees, some don’t. A typical fee would be between £100 to £2,000, which can be added to the loan or paid off. There’s nothing different or any additional mortgage charges. You obviously need to get your solicitors and stamp duty is payable – which we will touch on.

How much stamp duty would I pay on a second home?

This changes in time because it’s a tax thing. I’d suggest you Google a good stamp duty calculator. I tend to use stampdutycalculator.org.uk – you’ll see that it depends whether it’s an additional purchase or if you’ve owned before.

In this instance, it will be an additional purchase because you own a property already and you’re buying a second. A big misperception is that you wouldn’t have to pay the additional stamp duty charge. As the rules stand right now in December 2024, you do.
You pay the normal rate of stamp duty plus 5% on top. If that’s a valuable property that will be a really chunky total.

Quite often people who buy a second property want to renovate it and move into it later. If you sell your first property, you can get a rebate of that 5% surcharge – depending on the rules at the time. At the moment, if you sell the first property within two years, you get a rebate. Just make sure you know the rules at the time you’re looking at this.

What are the pros and cons of buying a second home in the UK?

The main pro is that this will achieve your objective. I’ve touched on some reasons why you might do it – helping children, or a holiday home… and you will achieve that personal goal.

The general thing with property is also growth in value. You don’t need to take my word for it. On the Bank of England website you can look at inflation over time – it goes back hundreds of years. Over the last 40 years the normal rate of inflation in the UK is around 1,100%. But house price inflation is about 2,400% – I got those figures from nationwide.co.uk/HPI, which stands for House Price index.

You can look at what a property would cost 40 years ago, then what it cost today. So house prices do tend to run above inflation – simply because we keep making more people, but not any more property. So it can be quite a good long term investment, but just have a view on that, because these things change in time.

The downside is more risk. If you’re running two properties, it’s two sets of costs. If something changes with your personal situation, you’ve got the risk of two mortgages piling up quickly – that can be scary.

But a pro is that you could sell one to pay the other one off. Another con would be whether you have time to do all of this – life happens. If you have a nice high income now, you need to think about how wedded you are to that cost for a long period of time. But most people know what they’re doing. We will talk through these risks and costs. As long as you’re happy with it, it’s your decision.

How do I get a mortgage for a second home? How can a mortgage broker help here?

From an assessment point of view around lenders’ criteria, it’s very difficult. I’ve got a lot of clients who work in tech and their heads spin when they look at mortgages. They assume we have a bot that does all the assessment, but we don’t. Lending criteria is commercially sensitive, so they’re not very open about it.

But because we do this day in, day out, we have good contacts at the banks and we know what they will and won’t do. If it was easy, I’d be replaced by AI – so long may that continue and keep me in gainful employment.

We’ve got access to the market. If you just go to your bank, they might not do second home mortgages, or you might not have the deposit or the income they want to support it. From our perspective that’s no big deal. We just go to the next lender. You’re our client and we work for you to get you the right outcome, while a bank will only ever talk about their own products.

We’re also very rarely beaten on price. Typically you get the same rate you’d get going through a bank, and sometimes it’s cheaper because we get exclusive products. We can talk to underwriters, get things agreed on exception and achieve things that you wouldn’t think you necessarily can.

If you’re buying a second property, I’m guessing you’re pretty successful. You’re busy, so carry on doing that. Let us do the donkey work, because this is quite time consuming. You can focus on what you’re doing and get the benefits of buying a lovely second property.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.