Second home mortgage borrowing is becoming more difficult (Source: uk.hotels.com)
Key facts:
- Client looking to purchase a second home to use with family during summer holidays
- Property was 3 hours’ drive away
- Due to the rising cost of living, mortgage underwriters applied inflated and extra costs to the mortgage affordability.
- Because of these extra costs applied, the mortgage became unaffordable when it should have been easily affordable.
Our client:
A long-term client of Oportfolio, whom we have helped several times over the last five years with mortgages and remortgages, came to us because she wanted to explore the option of purchasing a small second home where her and her family could spend their summer holiday. Living in London primarily, our client wanted to purchase a small cottage in Dorset where she would probably spend a couple of weeks a year in the summer and perhaps Easter if the weather was nice enough.
She has a well-paid job and has a nice deposit amount in her savings. The price of the property was reasonable so the mortgage affordability in normal circumstances would not have been an issue at all for her. When the client made contact with our advisors and gave us the details of the property, we ran the mortgage affordability through with some lenders and they all came back as being affordable.
When it came to submitting the second home mortgage borrowing application, the mortgage lender asked for running costs of the client’s new property and her main residence which is common and also some other breakdowns of day-to-day essential spending. None of these affected the affordability drastically. However, when the application was assessed by the lender’s underwriting team, the second home mortgage borrowing figure came back as much lower than initially quoted and the mortgage was deemed unaffordable.
How did we help?
Shocked by the new borrowing figure provided by the lender, our mortgage administration team contacted the bank immediately to see what the issue was. The underwriter had explained that due to the rising costs of living and rising petrol prices, they had included high petrol costs into the affordability. They had assumed that there was the possibility that the client may travel to the second home every week via car (despite the property being a holiday home and only being used a few times a year). Therefore, they had included a large petrol cost that they believed wasn’t unreasonable.
Here is where maintaining a good business relationship with mortgage lenders, such as the one Oportfolio has, is so valuable. Our team explained to the underwriting department that the client would not be travelling to the second home every weekend as it is too far away, and they have children. It is simple a holiday home for short trips a couple of times a year. We also explained that the clients could use an electric car to travel to the second home as well so petrol costs could possibly have not even been relevant. After talking through the case and sense checking everything, the lender agreed that the petrol costs were over inflated, and they agreed to lower the costs to a more reasonable amount. The lowering of the petrol costs then made the mortgage affordable again and an offer was issued. By using our connections to the lender and talking things through with them, we were able to resolve an avoidable issue that might not have been resolved if we hadn’t.
What was the rate?
The loan was secured as a capital repayment and interest mortgage on a fixed rate for 5-years at 2.79%. After the fixed period, they would revert to the bank’s 4.25% standard variable rate at which time we will contact the clients to discuss remortgaging on to another new competitive fixed rate.
The overall cost for comparison is 3.90% APRC. The arrangement fee was £999 which was added to the balance of the loan, and early repayment charges were applied. The mortgage term was 34 years.
If you or someone you know is looking at purchasing a holiday home and needs second home mortgage borrowing, please feel free to give our friendly advisor team a call to see how we can help you.
