Are you considering buying a second home in the UK? Welcome to our guide on how to do it and what you need to consider.
Buying a Second Home in UK – How to do it?
A second house mortgage is for someone who already owns a home and wants to purchase another one. The reason for taking out a second mortgage is crucial since it will influence the sort of loan you receive. The requirements for obtaining a second mortgage are like those for obtaining a first mortgage, with the exception that the affordability requirements are stricter. This is since having two mortgages puts you in a higher risk category in the eyes of lenders.
You’ll need a second residential mortgage if the property will be used as a second family dwelling or to help a relative get on the housing ladder. You’ll need a holiday home mortgage if you want to buy a vacation house that you’ll rent out for most of the year.
How to get a second mortgage home?
The health of your finances plays a big role in getting a mortgage for a second house. If you have a significant spare income or have nearly paid off your first mortgage and can take on a second house loan, lenders are more likely to accept you. Lenders will look at your repayment history and do affordability checks to see if you can afford to pay two mortgages monthly.
A second home mortgage’s affordability is based on income and outgoings, just as a first mortgage. The distinction is that it is typically more difficult to meet. Make certain that your funds are in order. You may use a mortgage calculator to figure out how much you can borrow and how much your monthly payments will be.
If you’re thinking about buying a second home, there are a few things you should know first such as:
- Second homes incur a stamp duty surcharge of 3% on top of the normal rate of stamp duty tax
- You will need a deposit of at least 15% (or 25% if you plan to rent the property out) if you plan to take out a mortgage
- If you have an existing mortgage, you will have to meet strict affordability requirements to take out a loan on your second home
- Mortgage rates are usually higher to buy a second home
- If you want to rent out the property, you must take out a specialist buy-to-let mortgage
- Once you buy the property, there will be maintenance cost
- If you later sell a second home for more than you originally paid, you might be hit with a capital gains tax bill
Advantages of Buying a Second Home UK
The following are some of the advantages of taking out a second mortgage:
It’s possible that you’ll be granted access to a large sum of credit.
Alternative equity release methods come with fees and charges that you can avoid. Early repayment fees on the first mortgage, for example, may apply when mortgaging, but not when utilising a second mortgage.
The loan has no restrictions on how it can be used, so you can do whatever you want with it (see common reasons above).
In the United Kingdom, second mortgages are commonly available.
Disadvantages of Buying a Second Home UK
The following are some of the downsides and potential problems of a second mortgage:
- Second mortgages often feature higher interest rates than other types of mortgages, which means you will spend more to borrow.
- Borrowing against your home equity can take you longer to acquire the property outright.
- They aren’t assured just because you have equity in your property. Applications are subjected to a thorough review.
- If you do not repay, there is a real possibility that you will lose your home.
- If you can’t pay your mortgages, the second mortgage lender doesn’t get first dibs on the proceeds from the sale of your home. You might be able to pay off your first mortgage, but you won’t be able to pay off your second mortgage in full, leaving you with a large debt.
Things to consider
Check if you can receive a further advance on your existing mortgage first and seek guidance from a sufficiently competent counsel before taking up a second mortgage. They’ll be able to assist you in determining which loan is ideal for your demands and financial circumstances. When working with you, they’ll have to adhere to the Financial Conduct Authority’s (FCA) standards. These rules are in place to protect you. If you don’t get formal guidance, you risk taking out a loan that isn’t appropriate for your situation. If this occurs, it may be difficult to file a complaint successfully.
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