How to buy a second home: Everything you need to know

Buying a second home is a dream that seems out of reach for many, especially with current property prices. If you are however one of the lucky few who have the extra funds to buy a second house then you may have a few burning questions about what to consider, the advantages and disadvantages and what the difference is from purchasing your first property.

Below you can find out everything you need to know about expanding your property portfolio.

How does it differ from buying your first home?

When you are buying your second home there are a few things that you need to consider that may be different from your first or main residence property purchase.

We go through all of these throughout the article, but here is what you need to consider:

• Increased Stamp Duty

• Larger Deposit Required For house repayments

• Capital Gains Tax (CGT) May Apply When You Look To Sell

Should you buy a second home?

You may be questioning whether buying a second home is the right move for you. It really depends on you and your situation, many people are moving towards buying second properties to get a bit of extra rental income, use it as a holiday home or renovate and sell.

Before jumping into buying a second property there are a few things that you need to think about as there are a few pro’s & con’s to doing so, which we’ve listed below:

Pro’s

• Generate extra income

• You may be able to get tax reliefs for renovations & repairs

• Great alternative retirement fund

Con’s

• The cost if the property is empty

• Increased Stamp Duty Land Tax (SDLT)

• Responsible for property maintenance

• Finding tenants

• Borrowing can be difficult

Getting a mortgage on a second property

Second mortgages come with a greater financial risk for the lender which can make the process more complex.

Prospective lenders will weigh up your current mortgage and how much you can afford to pay on your second one as if it was left empty over the duration. Due to the increase, most lenders will also require a deposit of 15%, but there may be a few out there which are open to the typical 10%.

An option for you to get a mortgage on a second property is to mortgages on your own if you have enough equity, having an extra deposit will often give you preferential rates and you’re more likely to be accepted.

Redoing mortgages always comes with a risk, and you should make sure that you can handle the effect it has on your current mortgages.

How much is Stamp Duty going to be?

When you buy an additional property, you will be subject to stamp duty and subject to pay an extra 3% on top of the current rates for each band which is on homes worth more than £40,000.

The rates are as followed for second home buyers:

• £0-£40,000 = 0%

• £40,000 – £125,000 = 3%

• £125,000 – £250,000 = 5%

• £250,000 – £925,000 = 8%

• £925,000 – £1.5m = 13%

• £1.5m+ = 15%

How does buying a second property affect taxes?

Something to be aware of if you own a second property and are planning on renting it out is that when it comes time to sell you may have to pay Capital Gains Tax or CGT for short.

The amount you will be taxed on is the difference between what you pay for the property and what you later sell it for but it’s also worth keeping in mind that you are permitted to reduce certain tax liabilities such as solicitor costs, estate agent fees and any improvement work, although maintaining or decorating the property doesn’t count.

We’ve written a few articles around Capital Gains Tax, including how much you may owe & everything you need to know about it, so if you want to find out more head over to our Capital Gains Tax blog.