Second Home Mortgage Deposits

If you’re considering getting a mortgage to buy a second home, whilst there’s no set rules amongst lenders, it’s likely you’ll need to have a larger deposit than you did for your main residence.

This guide will give you a better understanding of how much deposit you may need, how this amount could affect your interest rate and where to look for help securing the best deals available.

How much deposit do you need for a second home?

On average you will be required to put down about 25-30% deposit, although there are a number of criteria that affect this general loan-to-value calculation (see below).

From a lender’s perspective, the larger the debt in relation to the property’s value, the bigger the risk, therefore, it’s often the case that borrowers will be asked to pay a larger loan-to-value ratio on a second home mortgage.

However, this loan calculation is from lenders who specify a standard loan-to-value criteria for second mortgage applications, but many don’t specify and have open-ended criteria, instead making decisions on a case-by-case basis.

Is it possible to get approved with less than 25%?

Yes, it is. There are no hard and fast rules, and there are lenders out there who will be willing to take a wider view on eligibility when applying for a second mortgage.

This is where working with an experienced broker would be beneficial, as they will understand which direction to go in when it comes to more flexible lenders and broader criteria that might suit your individual circumstances.

Do deposit amounts impact available rates?

Yes, it’s definitely a factor. Securing the highest loan-to-value available will come at a price and that’s typically the interest rates that will accompany these types of deals.

As with all kinds of different mortgages, the more money you put down as a deposit (therefore borrowing less), you will be in a stronger position to not only secure a mortgage but also benefit from the better rates.

For example, if you contribute a 40% deposit (or more) to the buying of your second home, you should get access to the best deals, therefore the debt itself will be cheaper to pay back each month and you will pay less interest over the mortgage term.

What affects the amount required?

There are a number of factors that will affect what percentage is required and it’s not as simple as choosing your own preferred deposit ratio when buying a second home:

• Credit history: The cleaner your credit report, the lower the risk, according to mortgage lenders. If they view your financial behaviour in the past as a concern, you might be expected to offset that risk by putting down a larger deposit. How you have coped and conducted your payments in your current mortgage term will also be considered.
• Affordability: All lenders will want to be certain you can comfortably afford the additional mortgage repayments throughout the term. The lower your current debt-to-income ratio is, the better chance you have of securing the borrowing you need.
• Equity in your current home: If you have significant equity already in your first home because you’ve paid off a good portion of the mortgage, it is sometimes possible to combine the loan-to-value borrowing ratio with your first home, which could bring down the deposit required in your potential second home.
• Type of mortgage: For example, a buy-to-let mortgage might require a higher deposit than a residential one.
• Type of property: Any benefits you might have gained from a strong eligibility might still be undone if your property type is considered risky.

Work out the loan-to-value (LTV) for your second home

Use our calculator below to see how much the loan-to-value would be on the second home you’re looking to buy.

A higher LTV may reduce the number of lenders willing to consider your application but an experienced broker would be able to help identify the ones who can help, saving you a lot of time trying to search by yourself.

How a broker can make the difference

With an understanding of the marketplace and access to the entire lender spectrum, working with a broker when applying for a second home mortgage could make an enormous difference when it comes to what deposit you’ll have to pay and the interest rate on your mortgage.

Having someone knowledgeable and trustworthy working on your behalf when going through the complex process will provide peace of mind and could save you money in the long-term.

The brokers we work with will know which lenders are likely to require a higher deposit than others, where your criteria fits, and where to go with the deposit you have available.

If you get in touch we will arrange for a specialist to contact you directly.

What is the impact on stamp duty?

As well as potentially paying a bigger deposit, stamp duty is also another large outlay that is hiked for second homes, so you should consider this sum carefully too.

Stamp duty on second properties is set at 3% higher than first homes as a result of the UK Government’s efforts to help first-time buyers onto the property ladder.

Use our calculator below to work out how much stamp duty you will have to pay on your second home.

Get matched with a broker who can guide you through

There are many things to consider when applying for a second home mortgage. Working with a specialist can point you in the right direction and make things clearer.

We work with second home mortgage experts who give independent and bespoke advice and guidance.

Call us today on 0808 189 0463 or make an enquiry for a free initial consultation to find out how the process might benefit you.