Using second charge to avoid conveyancing and beat stamp duty holiday deadline – Grundy

by: Marie Grundy, managing director of second charge mortgages at West One Loans
  • 23/02/2021
  • 0
Using second charge to avoid conveyancing and beat stamp duty holiday deadline – Grundy
Many people buying property in the first three months of this year will miss out on the stamp duty holiday as the 31 March deadline 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, whether residential or buy to let.

This option could especially appeal to landlords wanting to grow their portfolio and owners of more expensive homes.

By tapping into the equity in their own home and/or buy-to-let properties, landlords can raise money to make another purchase.

 

Avoid conveyancing delays

The big advantage with second charge mortgages is there are often no post offer conveyancing requirements which means there are usually no delays after the offer has been issued.

With first charge mortgages, customers can often wait weeks for the legal work associated with the purchase transaction to be completed; which as we all know at the moment is being delayed even further due to high demand and Covid-19 restrictions.

But that does not happen as part of the second charge mortgage process 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.

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 and homeowners are benefitting from 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 there is the added incentive of paying less in stamp duty.

 

High equity homeowners

Using a second charge for house purchase is more prevalent among property investors but we have been seeing homeowners using it to buy another home.

This is becoming more popular since the 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, who use a second mortgage to purchase a holiday home in the UK or abroad.

They have a significant amount of equity in their main home which they can tap into and use to fund a second property. 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, and can demonstrate long-term affordability, a second charge is a way to raise a deposit or use as a top up to complete a purchase.

Of course, all additional properties that are bought for more than £40,000 are still subject to the three per cent stamp duty surcharge.

But buyers purchasing property under £500,000 can take advantage of the current stamp duty holiday – at least until 31 March 2021.

 

 

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