Articles:
Second Home Mortgage – What will it cost me?
SB May 2007
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.
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