Introduction to Second Mortgages
With pensions getting bad press and people of all ages beginning to look for alternative ways to secure their future financial health, it is no surprise that the number of individuals owning second properties has sky-rocketed.
Many people purchase second properties with a view to letting the property out on a long-term basis, thus ensuring that the mortgage is paid and allowing the owner to generate capital gains with the increase in the value of the property, over the years. This theory seems to be working quite well for many buy to let investors, but it is worth being aware that success is dependent on many factors including:
whether or not the property gains in value over the time it is held;
whether reliable tenants can be found;
and, crucially, whether the mortgage deal that is financing the investment is sufficiently flexible and is suitable for the investor's needs.
Second Mortgages for Holiday Homes
Some second homes are purchased primarily as holiday homes, but also in the hope that they gain in value, over time, allowing the investor to sell them off to fund retirement, later in life.
Other Second Home Mortgages
Less common ideas include purchasing second properties for children to live in, typically whilst in university, or second homes for renovation and then resale.
What is a Second Home Mortgage
Simply put, a second home mortgage is a mortgage on a property other than the one that is your main residential home. It is not essential that a mortgage is already held on the family home; if you do not live in the property that you are mortgaging then it is a second home mortgage as you live elsewhere.
This may seem confusing that, even if you do not have a mortgage on a family home, a mortgage on another property would be seen as a second mortgage. Whilst this is true, the way in which the amount of mortgage that you are able to obtain is calculated will be different, if you have no other mortgage.
For example, when applying for a mortgage (either as a main home or as a second home) it is necessary to declare any loans or borrowings to which you are already committed. These loans (or mortgages) are taken into account when determining how much you can reasonably afford on the new property. If you already have a big mortgage and your income is not correspondingly large, a lender might be reluctant to give you a second mortgage, without proof of alternative income, as is the case with buy to let.
Second home mortgages may be taken for investment purposes or simply for a longer term need such as a holiday home or property for children;
a second mortgage, by definition, is any mortgage that is taken on a property that is not your permanent residential property, regardless of whether or not you have a mortgage on the family home;
bear in mind that lenders will look at your collective liabilities, including any other mortgages that you may already have when deciding if you have sufficient income to cover the payments.