If you are thinking of buying a second home now, the obvious place to buy it is in the UK. With the pound falling steadily against the euro, second homes on the continent have become vastly more expensive. And with airlines being hit by the spiralling cost of fuel, having your second home in the UK makes even more sense.
What’s more, with house prices falling, this is a really good time to go for your second home. The only snag is that mortgages are harder to get. So how are you going to finance your second home?
Well, there are ways to make it easier to get your second home mortgage.
A second home mortgage is a mortgage on a property that is not your main residence. The lender will look at all your outgoings, and will look at any debts secured on your main residence, before deciding whether to grant the mortgage. If you have no mortgage on your main residence it will make it easier to get the second home mortgage – you have a lot more security to offer.
Even in these days of credit crunch there are still a good supply of mortgages available for those who can put down a sizeable deposit – i.e. who are looking for a low loan-to-value ratio mortgage. If you can release equity from your main home to provide a substantial deposit on your second home, you shouldn’t have a problem getting your second home mortgage.
If you plan to let out the house as a business and not to live in it yourself, you will have to apply for a different type of mortgage – a buy to let mortgage or a holiday let mortgage. However, even if you do want to use it yourself, you may still want to let it out sometimes to help with the finances. If you do, you must ensure that this is permissible under the terms of the mortgage. But it does make sense, both to prevent it from standing empty for too long and to help you afford your second home mortgage. (Remember that tax is payable on rental income, at your normal tax rate, but the interest element of your second home mortgage repayment is deductible for tax purposes.)
It will be easier to afford your second home mortgage if you go for an interest-only rather than a repayment mortgage. However you do need to have a clear plan for repaying the capital at the end of the mortgage term. These days you can’t rely on the house having appreciated in value, so you can’t count on selling it at a profit. Of course, if the idea is eventually to use it as your retirement home, you should be able to repay it through the sale of your main house.
There is no denying that mortgages of most kinds are harder to obtain at the moment. However, you can still obtain a second home mortgage provided the lender is satisfied there is minimum risk. The more you can demonstrate your ability to afford it, the easier you should find it to obtain a loan.