Lunds shunned on funds in second-home conundrum: Reluctant lenders surprise couple who want house for nanny; Societies say arrears are much more common on such loans

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The Independent Online
PEOPLE who dream of having a second home or modest investment property may think this is the ideal time to buy. But would-be owners of second homes may have trouble raising mortgages.

Tim and Vivien Lund of Peckham, south London, have a joint household income of more than pounds 50,000 and a mortgage of only pounds 30,000 on their family home, which is worth about pounds 65,000. They want to buy another house nearby, for their nanny to live in. She will live there rent-free while she works for the family.

'This will be like an annexe to our house. We could have moved to a bigger house, with room for our nanny, but this saves us the inconvenience of moving and everyone will have privacy,' Mr Lund explained.

The couple have put an offer on a house worth about pounds 62,000 and want to borrow pounds 30,000 to finance the purchase. This would take their total borrowings to pounds 60,000.

Most banks and building societies will lend three times a household's primary income for a normal mortgage, plus a second income, or 2.5 times the joint income. This means the Lunds should be able to borrow at least pounds 125,000. So they did not expect any difficulty in raising the money.

But it has taken nearly two months to obtain a formal mortgage offer through the brokers John Charcol. Charcol first tried Cheltenham & Gloucester Building Society and then Bradford & Bingley. Finally, Mr Lund's request was referred to Barclays Bank, which has agreed to lend at its standard mortgage rate of 7.99 per cent - but only after detailed scrutiny of the couple's finances, including copies of Mr Lund's last 12 bank statements.

Mr Lund, an investment analyst, said: 'I cannot understand why they are being so cautious. This is a second home but surely I pose no more risk than a first-time buyer who is borrowing practically the full purchase price of the property.'

The easiest way to borrow money on a second home is to raise a mortgage on your existing property, with your existing lender.

But this route was not really open to the Lunds because it would have involved doubling their existing mortgage, eating up nearly all the equity in their main home. Lenders who are willing to lend on this basis generally restrict the loan to 75 per cent of the main property's value.

Walter Avrili, operations director at John Charcol, said it was extremely difficult to obtain mortgages for anything other than ordinary owner- occupied property at present. Building societies were especially tough.

He said Charcol would have been able to organise a loan for the Lunds more quickly if it had gone to a lender charging a higher rate of interest.

Building societies are limited in the amount they can lend on properties that are deemed a commercial venture. The definition of a commercial venture is quite tight. It would include a second home let out for most of the year, but does not rule out the genuine family holiday cottage.

Some societies have cut back drastically on lending for second homes because arrears have been more common on these loans than on conventional ones. Cheltenham & Gloucester officially stopped lending on second homes in January 1992, although it will still consider applications from existing borrowers. A spokeswoman said: 'These are more difficult loans and our research showed that they were twice as likely to fall into arrears as mortgages for owner-occupied homes.'

John Harper, lending policy manager at Bradford & Bingley, said the society did not have a blanket ban on loans for second homes, although it was cautious. 'The typical way we would do it is by offering an additional loan on the person's existing property.'

Mr Lund's existing mortgage is with Halifax Building Society. He did not ask it for help because he believed the society did not lend on property not for owner-occupation. In fact, Halifax will lend on second homes not bought for investment purposes.

Abbey National, the country's second-largest mortgage lender, seems to have a reasonably flexible attitude to second homes, and has a subsidiary that specialises in French franc mortgages for buying homes in France.

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