Saving enough to get a mortgage for one property is an achievement on its own! But there are lots of situations where you might need to take out two home loans – and juggle two sets of repayments – at once.
There’s good news, though. If you can prove to a mortgage lender that you can afford it, it’s legal, normal, and absolutely possible to have two mortgages at the same time.
Here’s what you need to know.
Can you have more than one mortgage?
If you can pay them back reliably, you can have more than one mortgage at once – whether that’s two, three, or a whole portfolio of houses and flats.
This makes a lot of sense because properties have different purposes (and, to reflect this, there are different types of mortgages too).
Everybody needs somewhere to call home, but you might also choose to make some income as a landlord. You might also have a holiday home. And you might also be able to support someone in your family by buying a place for them to live. If you’re a business owner, you might even need commercial property too.
The only thing you’re likely to run up against is that it’s very difficult to have more than two residential mortgages, which are mortgages for houses or flats that you or a family member will personally live in.
If you already have a residential mortgage, you can usually get a mortgage for a second home closer to work, or home for your children, or a holiday house that you won’t rent to anyone else. But having more than one of these extra mortgages is probably out of the question.
What’s more, whenever you apply for a second residential mortgage, you have to prove to your lender that you have a good reason for needing a second home. You’ll need to provide evidence of this on your mortgage application and declare which of the properties will be your main home.
This is the main way lenders prevent people from illegally subletting properties to avoid the higher interest rates and deposits that come with buy-to-let mortgages.
What are the eligibility criteria for taking out a second mortgage?
The eligibility criteria for a second mortgage aren’t that different from those you had to meet to get your first mortgage. You’ll have to provide evidence of your income and employment status, your debts, and your other monthly outgoings. Your lender will also calculate your credit score.
You can find out everything you need to know about mortgage eligibility criteria here: Mortgage eligibility factors to know before applying.
The number your lender is most interested in is your debt to income ratio. This is how they make sure you can afford additional monthly repayments on top of the repayments you’re making on your existing mortgage.
Debt to income is pretty simple. If you make £2,400 per month and your mortgage repayment is £550 per month, that’s a debt to income ratio of about 23%. This is a pretty healthy ratio to aim for. You should have a good choice of deals for your new mortgage if you can pay your debts with less than 25% of your monthly income.
If your second property is going to be buy-to-let, the lender will also calculate whether you can afford your mortgage based on the amount of rent you plan to charge and whether that’s a feasible amount in your area.
Additional costs for a second mortgage
While getting another mortgage is an achievable goal, it can be less affordable than your first home loan. Here’s why:
You might have to pay a higher deposit
When you first buy a house, paying a higher deposit can lower your monthly outgoings, but it can be tough to get such a large lump sum together.
It’s becoming easier to find mortgage deals where you only have to pay a 5% deposit on your first home, but a second property will probably need at least a 15% deposit. For buy-to-let, this can be even higher. It’s normal to pay at least a 25% deposit for your first buy-to-let property.
Put simply, if you want to buy a £275,000 house (the average UK house price at the end of 2021), you might be looking at a minimum deposit of:
- £13,750 as a first-time buyer
- £41,250 if it was an additional property
- £68,750 if you want to buy the house and rent it out.
You’ll have to pay more stamp duty
Whenever you buy a property in England or Wales, whether it’s your first or your fifteenth, you have to pay Stamp Duty Land Tax (SDLT). However, the rate is higher for second properties for a couple of reasons:
- It’s payable on every house or flat (instead of only if the property is worth more than a certain amount, which is the case with stamp duty relief for first-time buyers), and
- There’s a 3% surcharge on what you would pay if it were your only property.
Use our stamp duty calculator to see how much you’d need to pay on a second property.
Improving your chances of getting a second mortgage
Considering the extra expenses and the hoops you’ll have to jump through, you’re probably wondering how you can make it easier to get a second mortgage.
Here are some things that you can work towards to improve your chances of getting accepted – and even get yourself a better deal that saves money in the long run.
- Pay off any high-interest loans and credit cards. Existing mortgage debt won’t usually count against your mortgage application in the same way as these ‘high-risk’ debts.
- Save up a bigger deposit. This is especially true for buy-to-let properties, where you’ll often need upwards of a 25% deposit anyway.
- Get mortgage advice from Habito. We’re a whole-of-market mortgage broker, which means we can find you the best deals from high-street lenders and specialists, whatever your circumstances.
Can you have two mortgages on one property?
Having a main residence and a second property is a fairly common scenario, but you can also have two mortgages on the same house or flat.
This is sometimes called a second charge mortgage. Essentially, you’re borrowing back the money you’ve already paid off on your mortgage (which is also known as your equity – the part of the property that you own). This is usually used as a way to cover expenses you wouldn’t otherwise be able to afford – whether that’s essential repairs, raising the deposit for a new property, or paying off several other high-interest debts so that you only have your mortgage to worry about.
A second charge mortgage is different to remortgaging, where you pay off your current mortgage and get a new one so you can get a better deal, while possibly releasing some equity in the process.
The pros and cons of a second charge mortgage
Taking out a second charge mortgage with your existing lender can help you avoid some of the pitfalls of remortgaging.
- You won’t need to pay early repayment fees.
- You won’t need to organise or cover the cost of valuation surveys.
- And, if you’re in a worse place financially than you were when you took out your mortgage in the first place, remortgaging won’t necessarily get you a better interest rate.
But that’s not to say that a second mortgage on the same property is always the best idea either.
Generally, if you need to raise less than £10,000, it’s a good idea to consider a loan instead of a second mortgage. This is because increasing your mortgage debt always comes with the risk of losing your home if you can’t keep up the repayments. Even if you need money to make home improvements or renovate a second property – for example, to set up a buy-to-let – a bridging loan or a development loan is probably a safer option.
Second mortgage questions? Talk to Habito
When it comes to first, second, and subsequent mortgages, it’s great to have the experts in your corner. That’s where Habito comes in.
Our mortgage calculator lets you take a look at all your options – from high street lenders and specialists – and our friendly mortgage advisors are here to answer all your questions.