Here’s our simple guide to getting a second mortgage…
Whether you are buying a holiday home, a second house to act as a base if you work away in the week or a property to rent out – often referred to as a Buy to Let – Here’s our simple guide to getting a second mortgage…
So, how does it work? Well the first decision to make is whether you borrow against your existing property or the new one:
Borrowing Against your Existing Property
If you have sufficient equity in your existing property, you can use that as security for additional borrowing. This means there will be just one mortgage.
Equity is the amount of your home that you actually own – for example, if you bought a house for £200,000, with a £150,000 mortgage, and it is now worth £350,000, you have equity in the house of £200,000, so you could raise additional mortgage funds against this amount.
It’s not quite that simple however, as there are obviously rules governing lending – you will have to undergo a number of checks including proving affordability and a stress test, which ascertains how you would manage if your circumstances were to change. In addition, you will normally be limited to borrowing no more than 85 or 90% of the value of your property.
A Second Charge Mortgage
Instead of increasing your existing mortgage with the same lender, you could get a second charge mortgage – this may work out cheaper than remortgaging if you are in the middle of a mortgage term and would be subject to an early repayment charge, but interest rates will be higher. Again, this can only work if you have equity in the property
Borrowing Against the New Property
If you intend to use a second property for just your own purposes, many lenders will allow you to take a mortgage at normal residential rates. This will still require you to prove affordability but could be a cheaper option that adding to your existing mortgage on your principle residence.
If you are buying the property as a holiday home and expect to let it out when you do not want to use it, some lenders will allow you to use this income towards any proof of affordability.
If you are buying a property to let out on a permanent basis, the majority of lenders will lend up to 75% of the value but will base affordability on the anticipated rental income.
Even if you predict that the rental payments will easily cover the cost of a buy-to-let mortgage, your earned income will normally still be taken into account by lenders considering giving you a mortgage. This is particularly likely if this is the first time you have been a landlord. The lender will also have other affordability criteria that you will have to adhere to.
Buy-to-let mortgages usually have both higher fees and higher interest rates.
Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across the South of England including Oxfordshire, Buckinghamshire and Hampshire. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email firstname.lastname@example.org.
YOUR MORTGAGE IS SECURED ON YOUR HOME. THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.