Second Home Mortgage as an Investment
The vast majority of second home owners are doing so as some sort of investment plan. Whether the property is being purchased as a buy to let property to generate an immediate income stream as well as long-term capital gain, or as a holiday home for personal use with the hope of longer term gain, they are all considered to be investment properties.
In fact it is very rare and generally only reserved for those who have a split life that requires bases in two or more locations, for individuals to own more than one property simply to live in, with no expectation of capital or income gain.
Funding Second Home Mortgage
One of the obvious ways to finance a second home is with a mortgage on that property. When obtaining a second home mortgage it is vital that you consider from the outset the purpose that the property will serve and what, if any, income will be derived from the property. All these factors will affect your choice of mortgage and crucially, how much you will be able to borrow.
Buy to Let in the UK
If your intention is to purchase a property within the UK and let it out as a way of funding the mortgage, then you will have to prove to the mortgage company that the rent will cover the amount of mortgage for which you are applying.
Typically, lenders will ask for evidence that you are likely to achieve a rental of at least 120 percent (often in excess of 130 percent) of the mortgage payments, to allow for vacant periods and other costs such as insurance. Buy to let lenders will also normally require that you have a deposit of at least 20 percent to put into the purchase.
Buy to Let Abroad
For a property abroad which you intend to let, the requirements are likely to be similar, although there is the added complication that many UK lenders will not offer mortgages on property outside the UK. Furthermore, those that do offer foreign mortgages may only do so in a restricted number of countries.
Therefore, it may be necessary to obtain a mortgage in the country where you are purchasing the property; this will require local advice from both lawyers and financial experts. There is also the added issue of having to take a mortgage in a foreign currency which can mean that you incur added costs in converting that currency back into sterling. For these reasons, many investors intending to purchase a second property abroad will actually remortgage their family home to finance the purchase, thus negating the need for a foreign mortgage.
The vast majority of second mortgages are taken for investment purposes, whether it is for immediate rental gain or long-term capital gain;
buy to let in the UK will require an investor to prove to the lender that the income will amply cover the mortgage repayments;
those purchasing abroad may have to take a foreign mortgage which can prove particularly difficult and may encourage investors to look at alternatives, within the UK, such as equity release on an existing property.