Sammie Ellard-King
I’m Sammie, a money expert and business owner passionate about helping you take control of your wallet. My mission with Up the Gains is to create a safe space to help improve your finances, cut your costs and make you feel good while doing it.
Quickfire Roundup:
Buying a second property isn’t always straightforward. While buying a second home can be a great investment, there are plenty of watch-outs to be aware of.
Much will depend on if you’re looking for a second residential mortgage, a buy-to-let mortgage or funding for a holiday home.
Each comes with its own obstacles and a mortgage broker is a must to ensure that you have the best chances of your mortgage application being successful.
When people have got themselves securely on the property ladder, it’s not uncommon for them to start to explore the topic of how to buy a second home.
This is something that I did back in the early 2000s and, being a complete novice at the time, I learnt a great deal about the pros and cons of owning an additional property.
Regulations and laws have changed since my initial involvement and second property ownership comes with even greater challenges.
There are additional costs to consider such as ramped-up stamp duty and the rules around income tax.
Now, none of this means that you shouldn’t go down this route and buy a second property, but you do need to go into it with your eyes wide open.
By the end of this article, you’ll understand all about the process of buying a second property, the mortgage options that are available and everything else that you need to know.
Table of Contents
How to buy a second home in the UK
When it comes to buying a second property, the legal process is the same as when you buy your own home (often referred to as your primary residence).
This means that you’ll arrange a way to pay for the property, such as with a mortgage, and you’ll need to use a solicitor to complete the purchase.
The differences that you’ll come across when buying a second property are how difficult it can be to get mortgage lenders to grant you a second mortgage and the impact of the stamp duty surcharge.
Boon Brokers are one of the UKs leading online mortgage brokers. They have a 5-star excellent Trustpilot rating with over 543 reviews.
- No mortgage fees
- Whole of market access
- Free online consultations
- Directly authorised by the FCA
- No in person meet ups
What to be aware of before buying a second home
Before you start to take any active steps to buy an additional property, there are some key points that you need to be aware of. These include:
- Stamp duty land tax – there is a stamp duty surcharge when you buy a second property. At present, this is 3% more than the usual stamp duty rates
- How much deposit you’ll need – with a residential mortgage for your primary residence, you may have only needed a 5% deposit. For second properties this will be closer to 15%. If you need a buy-to-let mortgage you will need a minimum of 25%
- Affordability – If your current property has a mortgage, you’ll have to meet stringent affordability requirements before a mortgage lender will entertain a second mortgage. You’ll also need an exceptionally good credit score
- Rates – for a second home you’ll find that there are slightly higher interest rates. Often a buy-to-let property will have an interest-only mortgage to keep the monthly payments lower
- The use of the property – is this property to act as your secondary residence or it is to be a rental property? The latter requires a specialist mortgage product (buy-to-let mortgages)
- Tax – you will need to pay tax on rental income. Also, when it comes to selling, you may be subject to capital gains tax
Is it realistic to get a mortgage for a second property?
When buying a second home in the UK, it can be tough to get a second mortgage.
You have a far greater chance of success if you have paid off the mortgage on your first property so that your main residence is unencumbered.
Even in this case, you’d still need a larger deposit than you do when buying a first home, but you can release equity to help with this.
If your second property is an investment property rather than a home, things are a little different.
When you take this approach, you can still access mortgage products while your first property is still mortgaged. The difference is that you’ll need a buy-to-let mortgage as it’s illegal to rent out a property on a normal mortgage.
When looking for a buy-to-let mortgage, you’ll need a deposit of around 25% of the property value.
The mortgage lender will treat your application almost as a business proposal.
They’ll want to know the likely rental income and how much profit you’re likely to make.
The rental income needs to be a set multiple of the mortgage repayments. This gives confidence that your mortgage loan can be covered by your tenant’s payments.
If you’re looking to buy a second property as a holiday let, the mortgage product you need here is even more specialist.
While some holiday homeowners may have buy-to-let mortgages, the correct approach here is a commercial one.
The criteria here are very different to the ones in place for a residential mortgage. A mortgage adviser is a must here.
Should I look to buy a second property?
When looking at second properties, there are pros and cons to consider.
Here’s a look at the main ones:
Pros of buying a second property
- Your second property could be treated as an investment property. This means that, over the long term, the property value may increase, and you could stand to profit. If you get to the stage where you have enough equity, you could even release this as a deposit for another property. Just remember that no one can guarantee which way house prices will go
- You could let the property and generate a rental income. This should cover your mortgage payments and even leave you with a small profit each month. Typically, the rent will cover the mortgage interest rather than the capital
- You could use a second property as a holiday home. This means you and a family member or two could benefit from getting away whenever you want. Just beware, though: a furnished holiday let, if it’s available for more than 210 days a year, is classed as a holiday let and is then subject to different rules
Cons of buying a second property
- You need to pay stamp duty at a higher rate when you buy a second property. At present, the stamp duty tax has a 3% surcharge
- If you have a buy-to-let mortgage, your loan is probably on an interest-only basis. This means that you need to plan to cover what’s outstanding at the end of the term. Typically, this would be done using the equity in the house but that can’t be guaranteed
- Mortgage rates will typically be higher than those on first residential mortgages
- The purchase price is likely to be subject to more scrutiny, especially for a buy to let
- Tax relief rules have changed when it comes to interest payments on buy-to-let properties. This may have a significant impact on profitability, and you need to ensure that you have the right advice to navigate the tax implications
Boon Brokers are one of the UKs leading online mortgage brokers. They have a 5-star excellent Trustpilot rating with over 543 reviews.
- No mortgage fees
- Whole of market access
- Free online consultations
- Directly authorised by the FCA
- No in person meet ups
FAQs
Do I pay council tax on a second property?
Yes, you will need to pay council tax. Some local authorities offer discounts if a property is unoccupied.
However, if you have an empty buy-to-let property, some councils will actually charge you 125% as an incentive to get it tenanted!
Can I get a stamp duty refund?
You will pay stamp duty on a second property, and this will be at a higher rate.
However, if you live in your second home and, within 3 years, you sell your previous property, you can apply for the surcharge to be refunded.
Final thoughts
When looking at how to buy a second home, there’s plenty to consider.
Be sure that you’re looking at the stamp duty on second properties as well as how the rates compare to your existing mortgage.
This will help when it comes to comparing costs.
Just remember, there are significant differences when it comes to residential mortgages, buy to let mortgages and the finance that you need to purchase a holiday let.
Share on social media
Disclaimer: Content on this page is for informational purposes and does not constitute financial advice. Always do your own research before making a financially related decision.
