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Buying a holiday home
June 21st, 2010
Most mortgages deal with owner occupiers; this makes sense as owner occupiers are the main part of any property market. However there has been a growth in second homes, and a corresponding growth in the market for home loans to help buy these homes.
Second home loans are different from owner occupied home loans for a number of reasons, and so need specialist lenders or products. The main reason they are different is that they are not so reliant on the income of the individual who is buying the property as there will tend to be a larger deposit for a second home as there would be for a first home. This would mean that the second home would be a safer bet for many lenders. On the other hand a second home loan does not have the advantage that a primary home loan has, in that it tends to be treated as rent and so is paid in preference to most other forms of spending or debt repayment. This means that second home loans tend to be slightly more expensive.
The products tend to be either specialist home loans that are advanced by existing large lenders or they will be provided by specialists at providing second home loans. This is especially the case for loans to buy investment properties or second homes overseas.
Many holiday homes are bought with a deposit from equity in the first home. It is important to let the lender know that the deposit is coming from equity in the first home and to include the new amount of the mortgage in the amount of existing borrowings, rather than the amount of the mortgage before the deposit is taken out. In most cases the deposit is borrowed either from the original lender or is raised as a second mortgage by a separate lender.
In some cases mortgage lenders will be keen to make a joint loan for both the primary and secondary mortgage. Although there will be some savings on the administrative fees it needs to be thought through carefully as there may be a sense of losing the best of breed on the terms and conditions of the separate loans.
If buying an overseas property then it really should be with a specialist loan provider, particularly if using a foreign currency account. For investment properties, specialist lenders should also be used unless the rental is going to be incidental.
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Holiday home mortgages, What is a second home loan?, Secondary Home Loans, Buying a house when getting a job abroad, Benefits of Buying a House Instead of RentingTags: home loan, home mortgage
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