It’s not just first time buyers who are struggling to get accepted onto good mortgage deals these days. Second home owners are having a tough time too, with stricter lending criteria than we’ve seen in the past, and increases in stamp duty, making it harder to afford a second home.
Despite being asked to jump through hoops, the number of second home owners is on the rise. Record low interest rates and rapidly increasing house prices is motivating many homeowners to look into investing in a second property, either as a holiday home for themselves or as a buy-to-let* property.
But getting a second mortgage takes some planning, and could put your main home at risk if you’ve secured your borrowing on it. Here’s what you need to know.
The usual suspects
When you’re applying for a second mortgage, all the usual checks and confounding factors are sure to come into play, only this time they’ve got more clout. Needed a 10 per cent deposit for your main house? You could be asked for 25 per cent for your second. Needed a good credit score for your first house? You’ll need to be outstanding for this one.
If you’ve been through the mortgage process before, you should already know what you’re facing. As far as borrowing goes, you’re instantly a bigger risk to the lenders because you already have one mortgage, so expect them to be twice as tough on everything this time round. If you’ve paid off your mortgage, happy days; getting a second should be much easier.
Affordability Factors
Your mortgage provider will look at three main issues when deciding if you can afford a second mortgage or not. These are:
Your income: Your lender should ask to see copies of your bank statements, as well as proof of any savings on investments you are benefitting from. State benefits, pensions and any other sources of income should be disclosed and proven here too.
Outgoings: This is all about affordability, so even if you are desperately keen to secure a second home, you should aim to disclose absolutely all your outgoings at this stage. Think about regular outgoings like utilities and council tax, and those less regular ones such as Christmas and birthdays too.
Coping with changes: Right now, homeowners on variable mortgages are enjoying record low interest rates, but it’s not going to stay that way forever. You and your mortgage lender will want to ‘stress test’ your mortgage deal to see how you would cope if, for instance, interest rates rise again or if you, or your partner, loses your job.
Honesty is the very best policy at this stage, so try to bring to light everything you know about your own financial situation. If you try to make it look like you’ve got more disposable cash than you really have, you’re only risking falling into financial trouble later on.
Other expenses
Aside of the usual checks, raising a huge deposit and making sure you definitely can afford this second home, you need to be aware of some of the other expenses which are tied in with a second home, and which are generally more substantial than they would have been with your first.
Stamp duty: Stamp duty on second homes is much higher than that on your main residence. Currently properties costing £125,000 or less are free of stamp duty, but on a second home they will cost 3 per cent. In general, you will pay around 3 per cent more stamp duty for each bracket of house values than someone who is buying a main home.
Council tax: Council tax is a bit of a grey area, with councils free to offer discounts or indeed to charge a premium as they wish. It’s worth checking out the situation where you’re planning to buy, as some councils can charge double for second homes in their area.
Fees and charges: Solicitors fees, survey fees, estate agent charges… chances are you had to pay all these things back when you bought your main home, but bear in mind that the costs for a lot of these services has increased substantially since you were last in the housing market. Get quotes and make sure you’re fully aware of all the costs involved.
Being able to afford a second home is a great position to be in, and not a bad way to invest your extra cash. With interest rates at an all-time low and house prices rising steadily, your money will work harder for you in property than it will in a savings account.
If you would like to discuss your plans for buying a second home, and investigate potential mortgage deals, please get in touch. Call 01252 759233 or email info@thesurreymortgagebroker.co.uk.
* If you’re thinking about investing in property to then rent out, you’ll need a specific buy-to-let mortgage product. More about these here.
