While many of our higher net worth clients have ambitions to build large property portfolios, there is also significant interest in second homes. These additional properties tend to be a significant distance from their main abode and are often overseas. So, whether you are looking for a country retreat for the family, overseas holiday home or a pied-à-terre in the city we can certainly assist you in structuring the right mortgage finance for you. There are a number of potential pitfalls for those unaware of the tax situation but rest assure would we are fully up-to-date with all changes and proposals for the future.
In simple terms, the criteria for second home mortgages are exactly the same as those for a main residence. Many of our high net worth clients are in a position where the mortgage on their main residence has been paid down or they have relatively high equity content. However, even if you still have a relatively large mortgage outstanding on your main residence this will not necessarily impact your ability to obtain a second home mortgage.
When looking at existing mortgages and the combined impact of a second home mortgage, lenders will assess your ability to cover both payments. You will still need to put down a deposit on the second home and obviously the larger the deposit the smaller the mortgage. We can discuss the best mix of deposit/mortgage finance for your particular situation, taking into account current and future cash flow forecasts. In the event that you are in receipt of regular bonus payments from your employment there is also the opportunity to integrate part or even all of these payments into the affordability calculation.
We will produce a repayment schedule which will incorporate any asset you hold, income and outgoings going forward. It is also essential to take into account issues such as the recent increase in stamp duty for second home purchases – adding 3% to the current rate. Over the years we have seen some mortgage brokers attempt to secure finance for second homes under the guise of a buy to let transaction. This is a very dangerous path to take and we prefer the upfront and honest approach.
As more and more high net worth clients look towards acquiring a second home they can be used with a variety of uses such as:-
These are all legitimate uses for a second home and will in no way impact your ability to secure mortgage finance. It is also worth noting that the vast majority of second home mortgages tend to be interest only mortgages. The reasoning behind this is the likelihood that the second property will be sold before the main residence in the future. When you bear in mind some second homes are used as accommodation for children at university or elderly parents, this makes perfect sense. This type of arrangement also assists with short-term cash flow.
When it comes to securing second home mortgage finance the path will be clearer if there is significant distance between a main residence and a second home. If the two properties were in the same vicinity this may give rise to suspicions of a buy to let purchase and a lack of full transparency to the mortgage finance provider. It also assists in avoiding additional charges which may be associated with buy to let mortgages. A transparent, open and honest approach to mortgage finance is always the best way forward.
As we touched on above, the UK government recently increased stamp duty on second home purchases. The introduction of a 3% surcharge had a short-term impact on sentiment but has now been accepted by the markets and factored in. Our recommendations for second home mortgage finance will always appreciate the latest tax changes.
The UK mortgage market is made up of the more visible high street banks as well as private banks and niche lenders behind-the-scenes. Traditional mortgages tend to be the bread-and-butter for the high street banks although second home mortgages involving the use of collateral and utilising worldwide income streams can be a little more specialised. This is where our independent status allows us to speak with all lenders right across the market.
We can structure second home mortgage finance which will take into account basic income, bonuses, share options and the potential use of additional assets as collateral. Each lender tends to have their own specific criteria but we have vast experience and are extremely confident in matching your situation with the most appropriate finance partner. As the majority of our high net worth clients tend to own two or more properties we have created many different financial structures over the years. Tailoring the terms of second home finance to your specific financial situation is second nature to us.
Why not call us today for a no obligation chat and we can discuss your situation in more detail and the potential options?