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What to Consider Before Buying a Second Property

Thinking of buying a second home? Be in the know with what to expect.

Faye deGavre

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Jan 17, 2022

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4 min read

What to Consider Before Buying a Second Property

There are many reasons why you might consider buying a second home, from having a holiday house in the countryside for weekend retreats, or investing your hard-earned cash into a property, or if you fancy making money from property development.

Why buy a second home?

Some second-home buyers have a clear vision for their next property before making their purchase, but it’s okay if you’re not certain. Consider your options and discuss with family members who may be included in this decision. There are a few great reasons to consider a second home:

  1. Holiday home: If you have family in one area, travel often or simply love a corner of the UK, a holiday home may be what you’re looking for. Consider the location and make sure you’re looking in areas where you love visiting and exploring.
  2. Secondary residence: Does your job require a great deal of travel or time spent in a certain area? You may consider having a home away from home for when you’re on the job.
  3. Investment property: Some homeowners will buy a second home as an investment property. Generally, this means either flipping or reselling the home, turning it into a rental property. Keep in mind that rental properties will have different requirements when it comes to finances and mortgages. Be clear with your mortgage professional if you buy a second property with the intention to rent it out.

Financing a second property

Buying your own home is the dream. But buying two? Are your finances ship-shape to the point where you can afford to buy a second home? Even if you plan to collect rental income from the property, you’ll want to be sure you can afford the home regardless – especially if the worst happens and it’s vacant for several months.

Financial considerations when buying a second home include:

Mortgage

Unless you pay cash, you’ll need to take out the right mortgage for your second property. Applying to borrow can be a little more complicated than with your current property as you’ll need to provide evidence that you can afford it.

There are a few different mortgages available, such as:

  • Buy-to-let mortgage: If you’re purchasing a property with the intention to rent it out, you’ll need this specific type of mortgage. It usually requires a deposit of 25-40% of the property price.
  • Holiday-let mortgage: If you want to rent out the house for guests, you can apply for a holiday-let mortgage. To qualify for this mortgage, the property needs to be available to rent for at least 210 days in the year and put down a 25% deposit.
  • Buying to use a holiday home: For personal use, such as a holiday or a second home, you’ll simply need a regular mortgage. Most lenders will ask for a larger deposit than a regular property, at around 15%.

Deposit and interest rates

As you did with your first home, buying a second will require a down payment and a mortgage – unless you intend to pay with cash. You need to be sure that you can make all the monthly repayments.

Often, remortgaging is the best way to fund a deposit on a second home. When looking to remortgage, get an accurate understanding of how much your primary house is worth. With SmartVal, you can choose up to 3 agents to give you an online house valuation. With accurate figures in hand, you can then look at remortgaging. Avoid choosing based on interest rate alone – instead, look at what exactly you’ll pay.

Your remortgage application will also need to pass a ‘stress test’. This is related to things that could impact if you can meet your mortgage repayments, such as rising interest rates or losing your job.

Equity release

You can access the equity (the cash) tied up in your current home if you’ve over 55. By taking the money out in full or a few smaller amounts, this option lets older borrowers use the wealth they have in their home to pay for another. The most common equity release scheme is called a ‘lifetime mortgage’.

Capital Gains Tax (CGT)

You’ll have to pay capital gains tax on a second home if its value has increased when you sell it. Once your profits exceed your allowance, the rate of capital gains tax you owe depends on your tax bracket (determined by your annual earnings). Once you sell, ask your financial advisor or accountant to work out how much you need to pay.

Stamp duty

Stamp duty tax applies to most home purchases. With a second home purchase, you’ll often have to pay an extra 3% on top of each stamp duty rate band depending on the value of the property.

How to buy a second home

When looking for a second home, know what you want to use it for – this will affect the mortgage you need.

If you’ve already been through the process of buying a home, you know there’s a lot to keep track of. Get your finances in order and start your search. On Boomin, we help buyers get there first. You can see properties that are being valued right now, learn about new listings not yet live anywhere else and register your interest in homes that are sold subject to contract if you missed out.

Faye deGavre

Content Writer