There are thousands, even millions of articles online targeted at first-time buyers looking to get a single mortgage. But not anywhere near as many for the more experienced borrower who is looking to get a second mortgage. Buying another property for residential purposes or investment purposes is still a great way to invest your money and can be very beneficial for those who can afford to do so. Here at Oportfolio mortgages, one of our specialties is helping our clients expand their property portfolios. Our expert advisors have created a blog that explores getting a second mortgage to purchase another house and everything you need to know before starting your new purchase journey.
Second Mortgage To Buy A Rental Property
When you buy a property specifically to let out and need a second mortgage, you must secure a buy-to-let mortgage loan rather than a residential mortgage. A residential mortgage is reserved specifically for properties that you intend to live in, either full time or part time. If you attempt to secure a residential property second mortgage on a property that you let out, you are in direct breach of mortgage lender’s rules and will be subject to serious repercussions.
Getting a buy-to-let mortgage can be tricky if you don’t meet the right criteria. So, when you are looking to purchase a buy-to-let property it is important to speak to a mortgage advisor first. Your mortgage advisor will be able to give you help and guidance to get the best deal possible and will know all of the lender’s specifications and requirements.
Criteria
Generally, most buy-to-let lenders will need you to not be a first-time buyer if you are looking to purchase a rental property. Because this blog is about how to get a second mortgage to buy another house, this shouldn’t be a concern. Buy-to-let lenders will also normally require a larger deposit on rental properties purchased, compared to purchasing a single residential property. For example, you may be able to purchase a residential home with 10% or even 5% deposit potentially. But buy-to-let lenders generally need a minimum of 20-25% deposit in order to access their products.
Mortgage lenders will then assess how much they will be willing to lend you on your second mortgage for a buy-to-let by checking how much rent you are expecting to receive. They will ask for an estimate of the rental income figure and will make sure that the rent is enough to cover the predicted mortgage payments. This often allows people to purchase a rental property without having to prove a minimum income amount as the rent received and the ability to pay the loan back is the most important thing to the lender.
How To Get A Buy-to-let Mortgage
As we have already mentioned, the application process for a buy-to-let mortgage can sometimes be smoother than a residential purchase as the focus is more on the rental income that is going to be received rather than proving your own income. Some lenders will need you to have a minimum income, but others won’t and may only need a small amount of documentation to evidence your income.
The first step is to speak with a mortgage advisor. At Oportfolio we are experts in buy-to-let and buy-to-let portfolio mortgage advice. You will have an initial over the phone conversation with a mortgage professional who will go through everything that you are looking to do and will make sure that you meet all of the required criteria. If you do, they will request the relevant documents from you and then officially start the mortgage advice and application process.
No tenancy agreements will need to be in place or drawn up, all of the predicted rental income will be determined by valuers and estate agents and verified by mortgage underwriters to make sure that it is realistic. If everything adds up and all lender criteria is met, your mortgage will normally go through within a few weeks to a couple of months.
Second Mortgage To Buy A Second Residential Home
Now there are many reasons why someone might want or need to purchase a second residence. You might have commitments and obligations in two different areas of the country, for example you might work in London but your family lives in Manchester. So, you might look to purchase a second residence in the capital to stay in while you work and keep your family home up north. Or you may be in a strong financial position and just want to live a life of a bit more luxury with two or more places you can call home. Either way, the question “Can I get a second mortgage to buy another house” will cross your mind in most cases.
Buying a second residential property again can be tricky, even more so than a buy-to-let property because they are more uncommon and are not always an immediate generator of income. Again, before doing any research yourself into second mortgages, it is extremely important to speak with a mortgage advisor to make sure that you are making the right decisions with your money.
Affordability Criteria
When it comes to second residentials, it is treated very much the same as a regular single purchase mortgage however, the affordability and criteria is more challenging to navigate. Because you are purchasing a second property and keeping your original one, the running costs or the first property will need to be included in the affordability for your new second mortgage. That means that any existing mortgages, gas, electricity, council tax, water, ground rent or service charges will need to be included in your declared monthly outgoings.
Unless you have a high salary, including all of these existing commitments could seriously impact your mortgage affordability. If you want to borrow a large mortgage for a second home, your income will need to be higher than average. Also, second home mortgages generally require a larger deposit than standard single residence mortgages. Second home mortgages usually require a minimum of 15% deposit, but some lenders can ask for up to 40% depending on their own criteria meaning you could need to save a large amount of money for a deposit on a second home.
How To Get A Second Mortgage To Buy Another House
If all of the above still applies for you and you think that you can potentially meet criteria to get a second home mortgage, the best thing to do is start a conversation with an advisor. If you speak to a mortgage professional like Oportfolio, our advisors will be able to help you to get the best deal possible for your money and will help you to purchase your dream property.
Normally the first thing to do is have an initial telephone conversation with an advisor and go through all of the details of what you are looking to do, the details of your current main residence, and the details of your income and outgoings. From there the advisor will be able to check that a second mortgage is possible for you. Then, if you have found a new home, your advisor will ask you to send in some documents (income documents, bank statements, details of current property and any mortgages outstanding, ID etc.) and will start the advice and mortgage application process for you.
The lender will assess the full mortgage application and all of the documents that you have submitted. They will also carry out their own stress test to make sure that ownership of more than one residential property will still be affordable for you based on your income and outgoings. As long as everything meets the lender’s criteria for a second residential purchase, they will offer you a mortgage. This can take anywhere from a few days to a few weeks, to a couple of months depending on the lender’s processing times. Each step of the way, your mortgage advisor and their administration team will be keeping track of your application and giving you regular updates.
Should I Get A Mortgage Even Though I Can Purchase In Cash?
Some people may find themselves in the very fortunate position of being able to purchase a second home or a buy-to-let property in cash rather than needing a mortgage. For those people, it may seem like a very appealing opportunity to purchase without adding another debt to your outgoings. However, a lot of people who can buy in cash do decide to secure a mortgage on a second property. This can be for a number of reasons.
Common Reasons
- ‘Free’ money: When it comes down to it, any kind of loan can be seen as free money. Yes, you will need to pay it back, but it is a great way of getting quick cash that doesn’t immediately cost you anything and in cases like buy-to-let mortgages, as long as you are receiving enough rent from your tenants it won’t actually cost you anything per month.
- Ability to keep cash/savings back without spending it all: This is a big one, especially for people who have a large amount of savings that they are potentially looking to dip into to purchase a property. Having a mortgage can be a great way for you to still purchase a property but keep some savings back to invest in other things, or just for a rainy day. Let’s say you want to purchase a property for £500,000 in cash but you only have £500,000 savings. So if you buy the property, you won’t have any money left for stamp duty, solicitor fees, home improvements, future holidays, your retirement. You could potentially get a small mortgage on the property while still paying a large amount in cash and set aside one or two hundred thousand for when you need it the most.
- Flexibility: When you purchase a property in cash, that’s it. You have the house, and you are several hundred thousand in cash down. Getting a mortgage can give you flexibility in many ways, depending on how your advisor structures your loan. Your mortgage can help you by providing you with extra money to carry out home improvements, consolidate any debts you have or a number of other things.
Tax Liabilities For Second Properties
What taxes do you have to pay on second properties? Getting a mortgage on a second property can come with a lot of extra costs, so it is very important to make sure that you are aware of what you are liable for and what you need to pay. For second properties including buy-to-lets, you will need to pay stamp duty tax. This is a tax on property that the government charges. With single residences, this tax is much less and for first-time buyers is almost never charged as there is a high threshold. Currently, single purchase buyers are charged £0 tax up to £250,000 purchase price.
For people purchasing a second home or a buy-to-let property, the government charges a higher rate of tax. For an additional property, you will be charged an extra 3% tax on top of the regular rate up to a purchase price of £250,000. So, if you were just buying a single home at £250,000 you would pay £0 stamp duty. But if you owned a property already and were purchasing a second residence or a but-to-let at £250,000 you would need to pay £7,500 stamp duty (3%). Above £250,000 you will be charged an extra 5% up to £925,000 and up to £1.5 million you would pay 13%.
Speak To A Mortgage Expert
If you are looking for a second mortgage, speak to a mortgage advisor first above anything else. It can be a tricky mortgage to secure, whether you want to live in the property or not, and going it alone is not a wise move. Your mortgage advisor will be there with you every step of the way to give you guidance, advice and will help you get the best deal possible. Call our friendly and knowledgeable team of advisors today to see how we can help.
