Second Home Mortgage – What will it cost me?

You have found your dream second home and have started the search for a second home mortgage. It’s so exciting, isn’t it? And it’s easy to be starry eyed, rushing into things without considering everything. But you need to do your sums properly. You must make sure you are very clear what the second home mortgage is going to cost you apart from mortgage fees and your monthly payments.

• Deposit. This is the main cost to consider. It’s very rare that a lender will agree a 100% mortgage on a second home, or even 90%. The maximum loan is usually 75-80 percent of the purchase price of the second property. This means that you will need to find at least 20% of the purchase price. In fact, the larger deposit you can provide, the better. It is likely to enable more favourable terms on the mortgage, such as lower interest rates, availability of discount periods etc. One way of doing this is by equity release on your main residence. Even if you don’t have enough equity to fund the whole purchase, it’s a good idea to use equity release to provide as large a deposit as possible.

• Legal costs. When you are arranging a second home mortgage, it’s even more important to use a solicitor than it is when you are buying your main home. There are likely to be all sorts of unknown quantities when you are buying in an unfamiliar area. But make sure you choose a solicitor who specialises in conveyancing, rather than just picking one at random. It is surprising what elementary mistakes some solicitors can make! And don’t forget you will be paying not just the solicitor’s fees but the land registry fees and the search fees in addition.

• Valuation/survey. The lenders of your second home mortgage will arrange a valuation survey and add the cost to your loan. If you’re really strapped for cash, you can make do with this. But it is really advisable to arrange your own as well. The valuation survey won’t necessarily alert you to any serious structural problems – it is just to satisfy the lender that the home has a satisfactory resale value.

• Stamp duty. You won’t escape stamp duty unless the house you are purchasing is going for less than £125,000, which is most unlikely these days. Stamp duty starts at 1% of the purchase price and goes up to 3% if the price is £250,000 or more – this actually comes to quite a lot of money!

The important thing is that when you are arranging your second home mortgage you factor in all these costs from the start. If you get too carried away with all the excitement and don’t take these costs into account, you could be in for some nasty shocks later in the process.

Sean Horton is a Director of Holiday Let Mortgages who offer specialist advice for second home mortgages and holiday home finance.