Getting a second mortgage and buying a second home

Things to think about when getting a second mortgage. ID 73200640 © Vadymvdrobot | Dreamstime.com

What is a second mortgage?

A second mortgage is a secured loan of over £1,000 taken out against the equity in your property.

If you successfully apply for a second mortgage, this will mean that you have two mortgages to pay off. However, even though you’ll need to be a homeowner to take out a second mortgage, this doesn’t necessarily mean that you need to live in the home you’re securing the loan against – for example, if you’ve just purchased a buy-to-let property.

Why do people need a second mortgage?

There are a variety of reasons why people might need to take out a second mortgage secured against their home:

  • If you are struggling to get a form of unsecured borrowing – e.g. because you’re self-employed and can’t get a personal loan
  • If you want to remortgage to build up your credit score, this could mean you pay more interest on your entire mortgage. A second mortgage just means extra interest on the new amount you’ve borrowed
  • It might be cheaper for you to take out a second charge mortgage rather than to remortgage if your mortgage has a high early repayment charge
People also take out second mortgages to cover:
  • Home improvement and renovation costs
  • Debt consolidation
  • Healthcare costs

How much can I borrow on a second mortgage?

Basically, a second mortgage allows you to ‘free up’ any equity you have in your home and use this as security against another loan.

Equity is the percentage of your property owned outright by you - how much your home cost, minus any mortgage owed on it.

E.g. if your home is worth £500,000 and you have £250,000 left to pay on your mortgage, you have £250,000 in equity. This means £250,000 is the maximum sum you can borrow.

How much stamp duty will I pay?

Standard Stamp Duty rates range from 2%-12% of the property price. It’s only paid on properties over £125,000.

If you buy an additional property, you'll have to pay an extra 3% in Stamp Duty, regardless of how much the second property costs.

From the 1st April 2016, anyone who’s bought a second property in addition to their main home will pay:

  • An additional 3% for the first £125,000
  • 5% on a property which costs between £125,001 and £250,000
  • 8% on a property which costs over £250,001.

How to get a second mortgage

If you’d like to get a second mortgage, remember that affordability checks have become increasingly strict, so you’ll need to prepare evidence to show your lender you can cover the cost of two mortgages.

Tips for applying for a second mortgage:

  • Try to reduce your outgoings at least three months before you apply
  • Prepare a document which shows your income can cover two mortgages
  • Compare mortgage deals and seek professional advice to make sure you’re getting a second mortgage which works for you
  • If possible, try to repay your first mortgage early
  • Advantages and disadvantages of getting a second mortgage

    The advantages of taking out a second mortgage include:

    • It’s separate from your existing mortgage, so it’s not a direct risk to your ‘main’ home
    • If you are confident you can afford the repayments, a second mortgage is likely to be cheaper than a secured loan

    However, there are some disadvantages:

    • Paying for two mortgages can be expensive and could lead to debt problems
    • The ‘affordability checks’ for second mortgages are becoming increasingly harder to pass
    • A second mortgage puts your ‘main’ home at risk – indirectly – as you may have to sell your home if you can’t keep up with repayments

    Moving home with a second mortgage

    If you sell your home, you will need to pay off your second charge mortgage or transfer it to a new mortgage.

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