The ins and outs of purchasing a second home

Research reveals that 1 in 10 people in the UK now own a second home. It’s a figure that’s grown by 53% since 2001, and the number of second homeowners is rising further still as many of us emerge from the pandemic with a new set of ideals for achieving the perfect work-life balance.

The UK itself is packed full of beautiful destinations that make great spots for a holiday home or buy-to-let investment. With this, you’ll already be dreaming about how you’ll spend your weekends by the sea or in the country, or will be busy working out how you’ll spend that extra income generated by your very own holiday let!

Purchasing a second home of your own, however, is no walk in the park. There are many boxes that will need to be ticked to secure a second home in the UK. In this blog post, we share all the ins and outs of purchasing a second property.

The pros of second homeownership

Second homes make excellent investments, particularly if you intend to hold onto your burgeoning property portfolio for the long term. By choosing the right property at the right price in exactly the right location, you can also open up a whole new stream of income.

With the ever-increasing popularity of Airbnb and the UK’s new obsession with staycations, you’re likely to find the demand you need to keep your holiday let occupied. As the HomeOwners Alliance details, renting your second home as a holiday let can be a great little earner:

“With holiday rentals, you decide the nightly rate your guests will pay. Your rates can be modified at any time and can vary from night to night, season to season. For example, some hosts charge a higher nightly rate on weekends and a lower one during the week, when fewer guests are travelling and more places may be available. Airbnb says its typical UK host earns £3,000 a year by hosting for an average of 36 nights a year.”

The cons of purchasing a second property

For the many plus-points of second home ownership comes a selection of drawbacks. Securing a mortgage for a second home is particularly complex. Lenders have stricter criteria for the financing of second home purchases.

Those considering second homeownership should also think about how they’ll manage their second properties responsibly. Second homes significantly impact communities, particularly in the rural idylls that are so popular these days. As a second homeowner, you should aim to become a part of the community or manage your holiday let with care to keep local residents on your side.

Your tax liability as a second homeowner

You’ll have tax implications to contend with when purchasing a second home, whether you intend to use it as a holiday retreat or buy-to-let.

If your second home isn’t replacing your main residence, you’ll be liable for extra Stamp Duty Land Tax (SDLT). The current rates mean you’ll pay 3% extra SDLT for second home purchases. These additional tax implications don’t end when you become the official owner either.

If you wish to rent out the property as a holiday let, you’ll have to pay tax on the income you earn. Council tax is also due on second homes. When you come to move on, your second home may be liable for capital gains tax (CGT) on the profit made from selling the property.

Preparing for your second home purchase

As with any property purchase, getting the paperwork you need in order should be a priority. To secure a second mortgage, you’ll need to demonstrate that you are a responsible borrower with a good credit score and a reliable source of income. If you intend to rent out your second property, rental income forecasts will make for essential reading for would-be lenders.

You’ll also need a healthy house deposit to secure a second mortgage. Many lenders require a deposit of at least 25% of the value of the property.

For further advice on securing a mortgage for a second home, please get in touch with our team today.

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