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Second home mortgage: the need to be flexible
Demand for second homes has never been higher. Whether for a holiday home, a pad in town or accommodating a student son or daughter, more and more people are looking for that second property. However, as prices rise, more and more people are wondering what is the best way to arrange a second home mortgage.
In fact, if you are looking for a second home mortgage, you shouldn’t panic too much. As demand rises, there are an increasing number of options available. The best advice is – be flexible. Look at everything that’s out there and don’t be tied to one or two traditional alternatives.
For example, nowadays it is increasingly possible to obtain a second home mortgage on similar terms to that on your first home, rather than having all sorts of special conditions imposed. You can also remortgage your first home to raise the funds for your second property – your lender will just need to know that you have an income that is sufficient to support both mortgages.
However, as an alternative to either of these, it is increasingly becoming possible to split the borrowing between the two properties. So you don’t have to raise all the second home mortgage on one property.
So what are the pros and cons of this?
If you raise the total second home mortgage on one property, it will be cheaper in terms of fees. But, on the other hand, if this pushes the total loan to over 75 per cent of the valuation or purchase price, it will incur higher interest rates and lending fees. So the savings of avoiding duplication would be cancelled out.
“Splitting” can have advantages if you hope to let out the second property for part of the year – even if it is primarily for your own use. You can set the interest charges on that part of the second home mortgage against the income from renting it out, for tax purposes. But make sure you speak to the lender or a broker first, to check that letting is allowed under the terms of the loan.
Finally, another advantage of splitting is that it enables you to make use of both repayment and interest-only mortgages. Your mortgage on your main home is likely to be a repayment mortgages. However, your second home mortgage is much more likely to be an interest-only mortgage. This keeps payments lower, and you have more options for repaying the capital.
These days there are plenty of options for your second home mortgage. Talk to your broker to find out what is best for you.
