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Hello, and welcome to today’s episode of The Mortgage Mum podcast. Today we are sticking with the remortgage topic – as 1.6 million of you are coming up to the end of your fixed rate in the next few months.
We want to make sure you know your options when that remortgage comes around, and today we’re covering remortgaging to buy a second home.
There are news reports out there right now in May 2025 that people with a second home are actually trying to get rid of them. It’s because of new tax rules from the government – but having said that, there are still lots of you dreaming about buying a second home.
We’re covering all your questions today – I’ve got the amazing Tessa with me. Thank you for gathering everybody’s questions, so let’s get started.
You can absolutely remortgage to buy a second home if you have the affordability. Some people look at buying a second home with a remortgage because they have lots of equity – money tied up in their current property. They want to do something better with it.
They can use that as a lump sum deposit to purchase a second property, or if they’re really lucky, fully pay for a second property.
People want a second home for lots of different reasons. It could be a holiday home. When we get lovely weather like we’ve had this week, we’d enjoy it even more in a beautiful location by the sea.
Other people want a second property as a Buy to Let, to start building up their investments. It’s a way to use their money to make more. Some people buy properties for a family member. Perhaps an older relative needs a home and they don’t have the financials to do it. Or it could be someone younger – one of your children.
The latest thing we’re seeing is people buying their future retirement home while they’re young, have the equity, the drive and ambition. They get that future retirement home set up ready. They remortgage to do that now while they’ve got time to pay it back.
It really depends on your goals and financial situation. I’d want to know why you want a second home and what it’s for. We would go over the pros and cons.
The pros will depend on what you’ll use that second home for. It’s going to avoid saving up a lot of cash, because it’s there, tied up in your home already. More people are using that equity, especially now rates are starting to come down. It could be cheaper than borrowing the money in another way.
If the second home is rented out or it increases in value, it is an investment. You could be generating a passive income or making more with money that’s currently not serving you.
When you hit a certain Loan to Value threshold in your house – traditionally once you have about 40% equity – the rate doesn’t really change. Some people are really motivated to pay their mortgage off, but from a rate perspective that money isn’t necessarily serving you until you pay the mortgage off altogether. Of course, the less your balance is, the less interest you’ll pay.
The obvious disadvantage of remortgaging to buy another home is that your monthly payments are going to go up. You’ve worked really hard to pay that down, and you’ll see them go back up, together with your overall debt. That means the overall interest that you’ll pay on that mortgage goes up as well.
You are also more exposed to interest rate changes. If they go up, you’re going to have a much bigger mortgage and that’s going to impact you more. We also have to state the fact that house prices may not always go up. We tend to believe they will. But if they don’t, you’re shrinking that equity pot even further.
I would say it’s worth it if the numbers stack up and you have a good enough reason – and it’s our role to explore that with you.
The first thing they want to know is why – what will that second property be used for? Lenders like and dislike different things. Some lenders don’t like a holiday home, for example, and won’t allow you to capital raise on your remortgage to buy one. However, they might let you have a Buy to Let.
The purpose will determine the lenders we look at and what documents they will want to see. We’ve got an episode all about holiday homes, because that is a whole topic in itself – in proving your income and making sure the lender is comfortable.
With remortgaging to raise the capital to buy a second home, It’s all about affordability. What do you earn, what debts and financial commitments do you have? Lenders will stress test your finances against interest rate rises, as well.
It’s much like a traditional remortgage, except they’re trusting you for a higher amount. Lenders will take a deep dive to make sure you can afford to borrow more.
Generally for a second home, most lenders want a bigger deposit of 15% to 25%. Certainly for Buy to Let properties, 25% is the normal deposit amount. If it’s a holiday let, it’s probably even more – 30% to 35%, depending on your risk.
Affordability and deposit links together. If you’re buying a home and you’re not renting it out or letting it for holidays – it is purely for your own use – you’ve got to have enough income for two sets of mortgages and bills. It’s not just about borrowing the extra on your mortgage.
You’ll have two properties to run. What’s the council tax likely to be? What other running costs are you going to have? That’s really important because it’s not just about buying the home, it’s about sustaining it.
Even if you’re renting it out, there are costs associated with being a landlord to take into account. The deposit really measures the amount of risk that lenders see.
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We see this quite often. People want to remortgage the residential property that the family is living in to buy a second home. They agree to release some equity for a deposit.
They need to be able to afford to run that house and get that mortgage. It’s definitely doable. It can be more affordable than people realise, because you’re not paying all the running costs of two houses. You’re paying the maintenance on one house, depending on what your agreement is, and. then you’re running the second home.
There are so many scenarios. It’s always individual. There’s no typical remortgage for a second home because there are all sorts of reasons why it’s needed.
It absolutely is if you are looking to grow your wealth in a different way. Some people are already living in their forever home. They’ve got no intention of moving and don’t need that money to move to another property. They want to grow their wealth.
They want to make more money from the equity they’re sitting on. A lot of people are driven to start a property portfolio – and it normally starts with that first remortgage and that first property purchase.
If a home has grown significantly in value, people aren’t using that money to their best advantage. We’re taught to get a mortgage and pay it off, but with the number of investment options out there, you can make more money by using it smartly – you can invest and simultaneously pay off some of your mortgage.
In certain periods of your life, you can do both. But it really depends on your attitude to risk and how you want to manage your money. You’re borrowing more against your home to invest in another one.
If the property market does something we don’t want it to, or you lose income, or if you don’t get the expected value, you are doubling your risk. If interest rates change, you’re doubling the impact.
There are also tax liabilities to think about. So it is riskier. But my view is very much ‘no risk, no reward’ – a lot of business owners are the same. I see it as a business opportunity.
I also see people buying beautiful lodges now. They’re not quite caravans but an upgraded version. You can’t get a mortgage on those, so people buy them outright and they’re very reasonable.
They might be by the sea where people enjoy a beautiful time in certain months of the year and they love it. Life’s about balancing what’s going to make you happy, and will give you that real quality of life, with the associated finances and risks. You have to weigh up the two, with the right advice.
Stamp duty has just gone up this year and it’s hit some people quite hard. If you’re buying a second home, the additional rate was 3%, but it’s now 5% in additional stamp duty.
No matter what, you will be paying that. If the property is over £125,000, you’re paying an additional 7% up to £250,000. Over that, the additional rate stamp duty is 10% and, again, that will creep up to 15% percent over £925,000. If you go all the way up to £1.5 million, it’s 17% – so it can stack up. It definitely needs to be factored in when you’re budgeting.
The other thing to mention is capital gains tax. A second home is considered an investment, and you will pay capital gains tax on the profit you make from it. On a main residence, you won’t pay that. You have ‘capital gains tax exemption’.
You’ve got to look at that when weighing it all up. I would absolutely recommend having a good tax advisor next to you as you make this decision. They’ll explain different ways to utilise your tax bandings – and talk about different taxes that you don’t even know exist.
Yes, you will. You need to declare it firstly to your mortgage lenders – which you’ll do when you first apply for the remortgage. In all future applications, you’ve got to state how many properties you have, your mortgages and property values.
You’ve got to tell your local council to pay council tax or business rates, depending on how you’re using it. You’ve got to tell HMRC if you’re planning on renting it out or earning money from it. It’s got to be reported on your self-assessment tax return. Even if it’s just a weekend holiday home, you’ve got to declare it.
The risk of owning a second home is that you are owning two properties. You have double the market risk and double the exposure if property prices fall. On the flip side, you have double the opportunity if the housing market is booming.
If you’re letting a property out, there are multiple risks there, because you need the rental income. You could have bad tenants that hurt your cash flow. You could have times where things are going wrong with the property.
It has to all be weighed up – there is a downside to every positive. Capital gains tax is seen as a negative, but it’s just something to go into with your eyes wide open.
There’s also the upfront cost of doing it. You’re taking on more debt and putting your current equity at risk, if it doesn’t go the way you want it to. But you can always sell the second home and put it down to a mistake. There’s nothing you can’t unpick if it’s not how you wanted it to be.
Depending on what that second home is used for, there can be many pros. It’s how people achieve their goals. They want that beachside property, or to start a property portfolio – it can be a really good place to start because you’ve earned that equity. You’re not using it.
Why not have your money work for you in a different way, if you’ve got the desire to do it? Once you’ve got the right advice, it can access something you wouldn’t otherwise be able to do. And, of course, you can save up a deposit instead. There’s all sorts of ways you can do this – it’s just about talking to somebody.
But it’s good to have goals. If you’ve got a goal, double it – what would you like to achieve by being really ambitious? Could you stretch that goal even further? Then, find out what you need to do to get there. You may find you’re sitting on the equity to start today.
Our role here is about so much more than the mortgage. We help you navigate the complexity of owning multiple properties – without scaring you. We want to empower you with knowledge.
You’re going to know what you’re doing; you’re going to take control with our support. That’s invaluable. If you’re taking a risk, you definitely need the right team around you to make the right decisions, and give you that confidence boost to say, you’ve got this.
We can weigh up the pros and cons, completely detached from the emotions of the decision, and give you the right advice. It’s really important to have that sounding board.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
For specialist tax advice, please refer to an accountant or tax specialist.
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