Every year, thousands of people across the UK buy a second home.
It’s an excellent achievement and investment.
However, it comes with challenges, too.
Read on to learn more about the considerations you should make before doing it.
Reasons to buy a second home
Holiday home
A second home can give you a place to spend holidays. This is ideal if the property is on the other side of the country.
Helping a family member
You could also buy a second home for a loved one. Maybe you’ve got a child who’s leaving home, and you want to help them onto the property ladder.
Or perhaps you have an elderly relative who wants to live closer to you as they enter old age.
Generate income
You can use a second home to generate income. A buy-to-let property is bought with the sole purpose of renting it out to tenants.
You can sign the house up for AirBnB with this intention, too. Or you could take out a regular residential mortgage, and then find a suitable renter.
However you do it, you could put £100s more into your bank account every month.
Investment
Property is always a significant investment. Buying a second home could seem the most logical way to spend it if you’ve got lots of spare money.
Your house will hopefully increase in value over the years you own it.
Disadvantages of buying a second home
Maintenance costs and effort
Maintenance is one of the main drawbacks of buying a second home.
You’ll be responsible if anything goes wrong with the property. Repairs will usually need to be paid for by you. And your tenant could keep calling up to ask questions.
Other costs and risk
Mortgage rates on a second home are typically higher. This is because the lender views it as a ‘risk’.
You’re more likely to default when you’re trying to look after several property payments at once.
There are other fees involved with buying a second home. You’ll need to pay a solicitor to support with the transaction.
There are also fees if you hire a property management company, or if you pay stamp duty on the second home.
What is let-to-buy?
Let-to-buy involves renting out your existing home and buying a new one.
(Many people think of the opposite, buy-to-let, when buying a second home.)
You can change your current mortgage into a buy-to-let mortgage.
You then let out your current home and get a standard residential mortgage on the property you’re buying.
It’s thus the opposite of buy-to-let. You’ll do this if you’ve found a second property you’d rather live in than your current one.
Can I take out a second mortgage with the same bank?
Yes. Banks and other types of lenders will let you take out two mortgages with the same organisation.
You’ll need to meet their lending criteria for the second mortgage. You aren’t automatically given it because you’re an existing customer.
Indeed, the criteria are likely to be even stricter because the bank is taking on more risk.
If you’ve always met your repayments on your current mortgage, this will work in your favour.
And it also helps if you’ve built sizeable equity in your current property.
What are the costs involved with buying a second home?
You should prepare for all the costs involved with buying a second home. This should be factored into your budget.
And in many cases, the costs can be even higher than when you bought your first.
Some of the main costs include:
- Taxes
- Mortgage fees
- Legal fees (including a survey)
- Insurance
- Valuation fees.
Ongoing expenses, such as maintenance and management fees, will also apply. The latter only applies if you hire a property manager for your second home.
Remember that mortgage rates tend to be higher on a second property.
Does buying a second home impact my tax payments?
Yes. There are tax implications when you buy a second home. You should speak to a qualified tax adviser to get personalised guidance.
Stamp duty
If you own a property, and buy a second one, there’s often more stamp duty to pay.
You’ll usually pay the standard rates plus a stamp duty surcharge of 3% on each band.
Scotland and Wales
The same principle applies in Scotland and Wales, although the percentage increase can vary.
If you pass away while owning two properties, inheritance tax payments will almost certainly be higher for your loved ones. This tax rises to 40% over a certain threshold.
Council tax
There’ll also be two lots of council tax to pay, when you own two homes.
And if you rent out one of your properties to make an income, then extra income tax could also be due.
How to make the process of buying a second home go smoothly
Each house purchase is different. But there are a few steps that all people in this position can take to make the process smoother.
Hire a property manager
Firstly, if you’re renting out your second home and aren’t hiring a property manager, it could be better to buy a house nearby.
You’ll probably need to visit it if things go wrong and there’s an inspection or a repair. It’s easier to do this when it’s nearby than across the country.
If your property is further away, consider a property manager. It’ll save you time and effort.
Vet your tenants
It’s crucial that you vet your tenants carefully. Their behaviour will significantly impact how enjoyable and profitable owning a second home is.
This includes right to rent checks.
Get a good legal and financial experts
And lastly, make sure you surround yourself with experienced experts. A solicitor can handle all the paperwork needed when buying a second home.
A tax adviser can ensure you don’t pay more than is necessary. And a mortgage expert, and/or an estate agent, can help with the process of buying the property.