Second-time buyer mortgage
If you are looking to move into a larger new home or your job has taken you to a different part of the country in which to work, you may be considering your next mortgage or ways of continuing with the current one.
A second-time buyer mortgage may be slightly different from your first, so let’s look at what’s likely to be involved.
What is the difference between a first-time buyer and a second-time buyer?
Naturally, a first-time buyer is someone buying a home for the first time, while a second-time buyer has already owned at least one home.
But, as you might expect, there are subtle shades of difference between these definitions in common usage and their interpretation within the mortgage industry. So:
- a first-time mortgage buyer is an individual who does not currently own their own home, has no outstanding mortgage responsibilities and no record of having had any, and is applying for a mortgage for their first-ever home;
- a second-time mortgage buyer is an individual who currently owns their home – which might or might not still be mortgaged – and who is applying for a mortgage the second or more time around.
While some lenders might also consider those who have not had a mortgage for three or more years as first-time buyers, this is not the rule as far as other authorities are concerned.
When it comes to the special allowances for first-time buyers concerning Stamp Duty Land Tax (SDLT) liabilities, for instance, the Express newspaper has been emphatic that you cannot be a first-time buyer twice. That is confirmed by HM Revenue & Customs in a webpage explaining that first-time buyers alone qualify for relief from Stamp Duty on house purchases of £300,000 or less and a reduced rate of 5% on homes valued between £300,000 and £500,000.
What are the mortgage options for second-time homebuyers?
If you are one of these second-time buyers, there are several options as far as a mortgage is concerned. You could:
- apply for a new mortgage – effectively re-opening the whole application process that you’ll have remembered from the first time around; or
- transfer your existing mortgage to your new home – this is known in mortgage circles as “porting” and allows you to maintain the current terms and conditions, including the rate of interest, of your present arrangements;
- there is an obvious attraction in porting your mortgage on these terms – which appear to make the whole process much simpler and faster – but when you do so, bear in mind that most lenders will still want to scrutinise your current circumstances before giving this option the go-ahead. It can easily seem that you are effectively starting all over again with a fresh mortgage application, and there will, in any event, if your application is successful, be further fees to pay; or
- apply for a buy to let mortgage – this will be the appropriate option if you are in a position to keep the home you presently live in but decide to let it to tenants when you move into your new home;
- if you plan to let your mortgaged property, you have no option but to apply for a buy to let mortgage.
Of course, any one of these options entails financial, legal, and tax implications, so you might want to consult appropriate professional advice before pursuing a particular solution.
How much deposit do I need for a second-time buyer mortgage?
If you opt for a 2nd time buyer mortgage, you are likely to find any lender’s policies on loan to value (LTV), or the ratio of the mortgage to the purchase price of your new home to be more or less the same as the first time around. In other words, you will need to find a similarly sized deposit – typically amounting to at least 10% of the home’s purchase price.
What you’ll also have going for you is the fact that you’ve had a mortgage before and been able to demonstrate your responsible management of that debt by making your monthly mortgage repayments when they fell due. That record will count for something as far as any lender is concerned and may help you secure the mortgage deal you are seeking.
Of course, the bigger your deposit, the greater the chances of success with your mortgage application.
You might even find limited offers of mortgages requiring a deposit of just 5% of the purchase price. The majority of such 95% mortgages, though – along with the government’s Help to Buy scheme (available until the end of March 2023) – are for the exclusive use of first-time buyers.
Mortgage guarantee scheme
It is also worth remembering that the government’s mortgage guarantee scheme is available to first-time buyers and “current homeowners”.
Several leading mortgage lenders participate in this scheme which provides 95% mortgages (just a 5% deposit required). The scheme runs until the end of December 2022.
Although the low deposit might mean getting a mortgage becomes somewhat more straightforward, beware that many such loans also come with a relatively high-interest rate.
Therefore, whatever mortgage deals you are considering, it is always likely to be worth your while consulting an independent second-time buyer mortgage broker to help you compare suitable and appropriate deals to meet your particular needs and circumstances.
Second-time buyers may be in a slightly more advantageous position than the first time around, but there may still be pitfalls to avoid. To help you do that and to identify suitable lenders for your new mortgage, you might want the benefit of the impartial advice given by those of us at NeedingAdvice.co.uk.
FAQs – Second Time Buyer Mortgage
What is a second-time buyer mortgage?
If you no longer own a house or have a mortgage, then you may be considered a second-time buyer if you’re looking to buy a property.
Furthermore, some lenders may view borrowers who haven’t had a mortgage for three or more years as first-time buyers. This can make things tricky because you won’t necessarily qualify for the best rates and terms. To find out the best interest rates on a mortgage as a second time-buyer, you may need to contact an expert advisor.
What sort of mortgage deals are there for second-time home buyers?
As we have discussed above, there are various mortgage schemes for second-time buyers mortgages such as help to buy for second-time buyers. However, these schemes are primarily targeted toward first-time buyers. There are other types of second-time buyer mortgages available too, including 95% mortgages, fixed-rate mortgages, variable-rate mortgages etc.
Why would I take out a second mortgage?
There are various reasons for taking out a second mortgage. For example, in case you have to change your work residence, so you could buy a smaller property and avoid the commute. As an investor, you can also purchase a holiday home with a second mortgage. Second homes could also be purchased for relatives. For example, you can purchase a second home for your children studying or your older parents where a buy to let mortgage won’t be appropriate.