Using second charge to beat the stamp duty holiday
By Marie Grundy, Managing Director, Second Charge Mortgages, West One Loans
Many people buying property in the first three months of this year will miss out on the stamp duty holiday as the deadline of 31 March fast approaches and conveyancing delays continue.
But there is a way to beat the stamp duty holiday deadline by using a second charge mortgage to purchase a property. The type of buyers this could apply to are those who have sufficient equity in one or more properties they own. This option could especially appeal to landlords wanting to grow their portfolio and owners of more expensive homes.
By tapping onto the equity in their own home and/or a buy-to-let property or properties, landlords can raise money to make another purchase.
The big advantage with second charge mortgages is that there is no need for conveyancing, so there are no delays after the offer has been issued. With first charge mortgages, customers must wait for the conveyancing to be carried out, which as we all know at the moment is being delayed due to high demand and Covid restrictions.
But that does not happen with second charge because once you have the offer the customer can usually complete the next day. That is the key difference between a first and second mortgage and where the speed element comes in. From a customer service perspective, we are operating at highly responsive turnaround times and will update our brokers the same day or at least within 24 hours.
We are seeing more of this type of business, probably because we are one of the few buy-to-let second charge lenders. After debt consolidation and home improvements, property purchase is the third most common reason for taking a second mortgage, in our experience.
Many landlords have five-year fixed rate mortgages so remortgaging might be costly for them if they want to raise money for another house purchase. A second mortgage can be a cheaper option but now, until 31 March 2021, there is the added incentive of paying less in stamp duty.
Using a second charge for house purchase is more prevalent among property investors but we have seen homeowners using it to buy another home. This is becoming more popular since the Covid pandemic started as more people have been working from home and staying indoors.
We have cases of high net worth individuals living in large cities, particularly London, but wanting a second home in the countryside. They have a significant amount of equity in their main home which they can tap into and use it to fund another house.
There are also clients who are using their main home to fund buy-to-let investments. For people who have other funds at their disposal, second charge is a way to top up to complete a purchase.
Of course, all additional properties that are bought for more than £40,000 are still subject to the per cent stamp duty surcharge. But buyers purchasing property valued between £125,001 and £500,000 can take advantage of the current stamp duty holiday. Using a second charge mortgage means they will save money by not having to pay the residential stamp duty rate – at least until 31 March 2021.
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