Buying a Second Home – Things You Need to Know

If you are looking into buying a second home, whether you plan to rent out your new home or your first home or use it as a holiday let, there are several important things you need to know. 

Things you need to know when buying a second home 

1. What will it be Used For?

The first consideration is determining what your secondary property will be used for. Is it for yourself, your family, or to let out? And when it comes to letting, will you offer short-term or long-term contracts? It may seem like a lot to consider before you even begin your property search, but the property’s purpose will impact things like mortgage requirements, stamp duty, taxes and your financial situation. Therefore, it’s important you go into this process with a clear goal in mind. 

2. Mortgage requirements 

If you are a cash buyer, then you won’t need a mortgage. However, if you need a mortgage when buying a second home, there are a few options you need to choose from. This will be determined by what the property will be used for;

• A second residential mortgage – for properties that will be used by yourself or family and friends with no letting charges 
• Holiday let mortgages – for holiday or short-term rentals. 
• Buy to let mortgage – for long-term rentals. 

This is why it’s important to know your purpose for the property before buying it. 

3. Your Deposit

The deposit amount for a second property can be a shock to people. Different mortgage types have different deposit requirements, but you’re looking at at least 15% of the property value. However, for buy-to-let, a much higher amount is often required; anything from 25% to 40% is a common requirement. 

4. Your Finances 

As well as a sizable deposit, you will have to prove that you have the income to support the second home. Lenders are likely to review your existing mortgage payments and take a deep dive into your credit score. 

If you have any other debts, financial burdens, or strains, it’s a good idea to make sure they are all in order and ready to be scrutinised.

5. Stamp Duty

If you’re buying a second home, it’s important to be aware of the difference in stamp duty fees. For a second home under £250,000, you’re looking at 3%. For between £250,001 and £925,000, the rate is 8%. Up to £1.5mil, it’s 13%, and over £ 1.5mil, stamp duty is 15%. 

This is an added cost when you are buying your property, so it’s important to keep this in mind. 

6. “Buy-To-Let”

If you are buying a second home with the intention of letting it out, this is called buy-to-let. You’ll have to make sure you have a big enough deposit and get the right kind of mortgage. 

It’s also a good idea to have a letting company on your side unless you want to be a very involved landlord. Going through a letting company will eat into your profits a little, but it is far less hassle than going it alone. 

7. More Taxes and Costs 

On top of the higher deposit you need to build and the higher stamp duty, there are several other costs involved. 

• Council tax
• Tax on earnings from rent 
• Estate/letting agent fees
• Capital gains tax when selling 

It’s important to note that it is still classed as a second home according to UK tax law even if your other property(ies) are not in the UK.

Needless to say, buying a second home is a minefield for extra expenses. The best thing to do to ensure you have all the correct information is to work with a property agent like Stacks. We can help you navigate the fees, ensure you have the right type of mortgage, and be there to help and advise you when you need it. Contact us today for help with buying your second home. 

Reasons for Buying a Second Home

There are several reasons why you may be investing in a second property. These are some of the most common ones. 

Holiday Home – if there is a place you like to travel to regularly, then a holiday home is a great idea. If you are purchasing this property for yourself or your friends and family to use and aren’t considering renting out, you don’t need to apply for a buy-to-let mortgage. Just be aware that if you don’t have a full-time resident on the property, you may want to invest in a security system or alarm, as people may notice that it is unoccupied for days at a time. 

It may also be worth investing in a local cleaning company to visit the property regularly or have a friend close by who can check on the property for you in an emergency. 

Buy-to-Let—If you are buying to let, you will need a buy-to-let mortgage. This applies to both long-term and short-term lets. 

For Another Family Member—Sometimes, people purchase a property to give to their children to help them get on the property ladder. If you’re doing this, it may cut costs if you gift the deposit to the person whose name you want the property in, and they purchase the property themselves. This way, you can avoid stamp duty and put down a lower deposit. Of course, this depends on your individual situation. 

How Can Stacks Help? 

If you are thinking about buying a second home and have some questions, give us a call today. Our property agents have a wealth of experience in property purchases. 

With our property finder service, we can also help you find the best property for your needs.