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Second mortgage deposits

Author: Myles Robinson - Expert Finance Advisor

Posted: May 15, 2022

Deposit for second home residential mortgage

A second mortgage deposit for a home will be slightly higher than the one you would put down on your first property purchase due to the increased risk.

Most lenders set a maximum of 80% LTV. However, some lenders may offer higher LTVs depending upon how much equity you have in your property.

You may be considering buying a second property, and you may be looking at mortgage deals.

There are many lenders and options available for a second residential mortgage, so it is essential to get the right advice in order to find the best deal for you as a second-time buyer.

Enquire today and we will refer you to one of our second property mortgage specialists. They will be glad to answer any questions you have and help you find the right mortgage for you to buy a second property.

What is a second mortgage on a property?

This article is about second property mortgages, Getting the best deal to buy a second property when you already have a current mortgage.

Our Buy to Let Mortgages section will provide you with information about buy-to-let and other non-residential second loans.

A “second mortgage” can also be referred to as Second Charges or Second Mortgages. These are secured loans that are taken out on one property with a primary mortgage (the “first fee”) already in place.

This is often done to raise capital for a property. It can also be used to refinance the first mortgage or take out unsecured bank loans.

This fast-growing sector is covered in our guide to second charges loans, secured loans or second charge mortgages.

Find out how to talk to a specialist advisor to learn more about second-charge mortgage rates and other aspects of secured borrowing.

What are the benefits of a second mortgage?

A second mortgage is necessary for many reasons. Here are some examples:

  • Work residence This is where an applicant’s job is relocated. To avoid commute time, a smaller property can be purchased and the family stays in the home.
  • A holiday home where the family wishes to buy the UK home to use as a holiday home (a property abroad would require a completely different setup).
  • Purchase for a relative Second home can be purchased for relatives to use. A buy-to-let mortgage is not appropriate for elderly parents or university-aged children who need to live there.
  • When a couple separates, it can sometimes prove difficult for one of the parties to pay a mortgage on their behalf. This is especially true if one of them was the primary breadwinner. The party who is leaving the property may be unable to pay the mortgage or remain on the existing mortgage. The solution is often for the main breadwinner to remain on the existing mortgage and purchase a new property as a secondary home.
  • Other reasons that are less common.

What deposit is required to get a mortgage for my second home?

There will be a different deposit amount for a second mortgage also known as a residential mortgage when buying a second home. This will depend on your creditworthiness and personal creditworthiness. Some lenders only care about how much deposit you have (e.g. Some lenders will only consider the amount of your deposit (e.g. 20%), while others may take into consideration how much equity you have in the home.

The type of property that you intend to purchase and your financial status can also impact the amount of the second mortgage deposit.

Hypothetical example

If the current property is valued at PS200k with a PS180k mortgage (90% LTV), and the new property will be purchased for PS150k with a 10% deposit, then the combined LTV would be 90%.

As you can see the deposit required to buy a second home with a home mortgage is huge. It all depends on which mortgage broker you choose. Compare mortgage deals, There are lenders who can accommodate all scenarios.

Our expert brokers work with specialist mortgage lenders. Talk to someone and find out about other options.

Is it possible for a second mortgage to be secured with 90% LTV?

It is theoretically possible to obtain a second mortgage for 90% LTV. Your options of lenders are limited as most limit loan amounts to between 75% and 80 percent. Some lenders will extend loans up to 85% in the right circumstances. A few others may go as high as 90%.

To convince specialist lenders to give you a second mortgage for your home with a higher loan-to-value ratio than the norm, tick every box on their eligibility checklist and show that you have substantial equity in your property.

One thing to remember is that second-home mortgages with higher LTV tend to have higher interest rates and higher monthly repayments.

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

Due to the risk involved, most lenders wouldn’t consider granting a 100% LTV mortgage for a second house mortgage.

A friend or family member acting as a guarantor is the best way to obtain a mortgage without a deposit for more than one mortgage.

A guarantor Mortgage will require the friend or relative who is helping you to either put up a piece of property as security or deposit a lump sum into a savings account owned by the lender. After a certain amount has been paid off, they will not be allowed to withdraw from the pot.

Is it possible to get a second mortgage if my credit is not good?

Your credit history will impact your eligibility for any type of finance, whether it be credit card debt or late loan payments. This can have an effect on both the available interest rates and the amount of deposit you need to get a second mortgage. Having certain negative events on your credit file will limit your ability to apply for mortgages.

Many people are able to obtain a second mortgage on a property with these credit issues.

  • Rating low
  • Late payments
  • Defaults
  • CCJs
  • Mortgage arrears
  • Debt management plans
  • IVA
  • Bankruptcy
  • Repossession

Although having these types of events on your credit history will restrict your ability to search for lenders, they may still be able to accept different types of bad credits depending on the time and how it happened. This depends on the financial picture, income, deposit size, and LTV of your current property.

Our specialist advisors will be able to help you with adverse credit questions when you are considering a second mortgage. For a confidential chat today enquiry here.

 

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

Different lenders have different policies regarding various types of property. There are also certain residential categories that can present more difficulties than others when looking to purchase a second home or flat.

You may require more deposit depending on the property. The deposit required by lenders will depend on the property’s risk. The lender might accept a mortgage on a second residence but may not allow for 90% LTV. However, if the property is considered to be riskier (see below), then the restriction could be increased to 85%, 88%, 75%, etc.

If the property is new,

You may have to be careful if you’re applying for a second mortgage on a property. Some lenders won’t accept flats but will take houses built from scratch. Many lenders will have preferred construction companies and others will accept only certain builders. Others will evaluate each case individually.

Non-standard properties are not allowed

Additional challenges may arise for your second mortgage application if you have non-standard property. These properties include:

  • Ex-local authority
  • Above commercial premises
  • Homes with unusual construction (e.g. Homes of unusual construction (e.g. thatched roofs, concrete prefabs)
  • Studio flats and very high-rise apartments
  • Hazardous materials (e.g. asbestos) asbestos)

It may be more difficult to get the best second mortgage deal if the property you are looking to purchase falls within one of these categories.

The experts who work with us can help you determine if a property type is eligible for a second mortgage. Send an enquiry to have a chat with one our experts.

Stamp duty on second homes

Consider the tax implications of buying a second house when you are thinking about purchasing one.

In 2019, stamp duty on second homes (SDLT), is 3% higher than on first homes. This means that it is 3% for purchases above PS125,000. The stamp duty exemption does not apply to subsequent home purchases.

Below is a table that compares stamp duty due on the second property to what is due for first property purchases at different price brackets. A stamp duty calculator for second homes might be useful.

Additional tax on second homes

Your second home will be subject to council tax.

The good news is that most councils offer discounts up to 50% for furnished second homes. To find out the discount available, you will need to contact the local council.

In the future, it is worth remembering that a second home qualifies for Capital Gains Tax (CGT) because it is considered an asset and not your home.

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