While buying a second home is still a luxury that only the lucky few can afford, the amount of Brits who have joined the more-than-one-property club has skyrocketed over the last few decades. In fact, more than 10% of the adult population now owns a second home, and the rise in multiple property ownership shows no sign of stopping. [1]
As we’ll see in just a bit, the reasons why people opt to buy additional property can vary, but the process largely remains the same...as do the costs...and we’ll cover everything you need to know here in our guide to buying a second home.
Reasons why people buy a second home
As we touched upon in our intro, the reasons why homeowners choose to go through the process of buying an additional property can vary dramatically, but they usually fall into one of the following three categories:
Investments
Buying a second home purely as an investment is what has driven the sharp increase in multiple home ownership. The growth of the private rented sector has given those who have the opportunity to do so a great way to invest in the property market via buy-to-let.
Holiday homes
Buying a second property as a holiday home is another popular reason and, as one would expect, this can mean buying either here in the UK or in an entirely different part of the world. While it may not be what one automatically thinks of as a holiday home, weekend retreats, usually in greener parts of Britain far away from the urban sprawl, fall into this category, too.
Of course, holiday homes can also be seen as investments as well, with many owners opting to rent out the property while they are not enjoying it themselves, but it usually isn’t the driving force behind the decision to buy a second home.
Buying for someone else
Our third reason to buy a second home is nowhere near as popular as those covered above, but a significant number of homeowners do still purchase a second home in order to help a loved one get a foot on the property ladder.
It’s worth noting, however, that putting another property in your name may not be the wisest choice, thanks to the current level of stamp duty you have to pay if you buy a second home (more on that in a bit).
Therefore, we’d recommend exploring your options fully, including ideas such as being their mortgage guarantor, gifting the money, or setting up a loan, before committing to purchasing the property yourself.
Ways to buy a second home
Just as there are three key reasons why people buy second homes, so there are three main ways in which people make multiple home ownership happen.
Getting a mortgage for a second home
A common misconception is that homeowners need to pay off their existing mortgage in order to get another, but that isn’t the case. You can have two mortgages running concurrently.
There are, however, a few things you’ll need to have in place if you want lenders to take you seriously. These include:
- Being able to demonstrate that you can afford the additional mortgage
- Having a credit rating that is beyond reproach
- Having a sizeable deposit, usually in excess of a quarter of the new home’s value
- Information on potential income to be made by the property in question
Let-to-buy is another option to consider if you are thinking of buying somewhere new to live whilst keeping the property you currently call home as your investment.
Using equity to buy a second home
If you find yourself in a position where your existing home has a large amount of equity behind it, you could consider releasing this in order to cover a percentage of the new purchase. This is usually done by way of remortgaging the original property.
Using cash
If you’re lucky enough to have cash to spend, buying a second home becomes a lot more straightforward. Find a property you like that is within your budget, run the relevant checks, get a survey done, and proceed.
Other key costs to consider when buying a second home
Unfortunately, the buying part is only the beginning. There are additional costs to consider when taking on a second home.
Stamp duty on second homes
One of the biggest inhibitors against buying a second home is the stamp duty you’ll be liable to pay when doing so. At the time of writing, this stands at a not-insignificant 3% of the property’s purchase price.
Capital gains tax on second homes
The costs continue when you come to sell as well. Capital gains tax will need to be paid when you sell up, and any profit over and above the current £12k allowance will be cut considerably. Those on higher taxation rates could be hit by as much as 28%.
Council tax on second homes
If you take buying and selling as two points at either end of the journey, there are still plenty of costs to be aware of along the way. One of these is council tax.
Council tax is payable on second homes, but you may be able to get a reduction if your property meets the necessary criteria. To find out more, check out the Council Tax page on gov.uk
If you are thinking of buying, selling, or letting in and around Wanstead, E11, Petty Son and Prestwich is a name you can trust. Founded well over a century ago, Petty’s has been serving the local community throughout, helping people just like you make their property dreams come true.
Give our friendly team a call today to find out exactly how we can be of service to you.
REFERENCES
- G. Bangham | Game of Homes: The rise of multiple property ownership in Great Britain, Resolution Foundation, June 2019 | https://www.resolutionfoundation.org/app/uploads/2019/06/Game-of-Homes.pdf