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Buying a Second Home

Adele MacGregor

Written by

12th Mar 2021 (Last updated on 9th Apr 2021) 10 minute read

Although buying a home can be out of reach for some people in the UK, there are others who have purchased or are preparing to buy a second home. For those in the position to do so, buying a second home can prove to be a great investment. This can either be as a holiday home, for a family member or as a source of income through renting the property.

Compare My Move works with property experts to bring you everything you need to know about buying a second home. From the tax implications to the ways you can utilise a second home, we review all the latest information on second home purchases in the UK. 

This article will cover the following:
  1. Why Would Someone Want to Buy a Second Home?
  2. Buying a Holiday Home
  3. Buying a Second Home and Renting It Out
  4. Buying a Second Home to Help a Family Member Get on the Property Ladder
  5. Advantages and Disadvantages of Buying a Second Home in the UK
  6. Costs of Buying a Second Home
  7. What Are the Tax Implications of a Second Home?
  8. Buying a Second Property Using Equity Release
  9. Final Step of Buying Process

Why Would Someone Want to Buy a Second Home?

There are numerous reasons why someone may want to buy a second home, either for themselves or to use as a source of income. When choosing a second home, it is important to know what you want to get out of it and how you plan to use it before taking the plunge. What is suitable use for one property, may not be the case for another. 

Below we look at some of the key reasons why people purchase second homes:

  • A holiday home for themselves
  • A holiday home to rent out (for example, on Airbnb)
  • As a Buy-to-Let Property for long-term tenants
  • Purchasing a property to renovate and “flip” (sell on at a high price)
  • Purchasing a property for a family member

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Buying a Holiday Home

One of the main reasons a second home is purchased in the UK is to be used as a “holiday” home. This can either be for personal use, to have a getaway for weekends and holidays, or it could be as a source of income as a holiday let. 

These can be in rural, countryside locations or alternatively, a city getaway. Many people opt for a favourite family holiday destination as a base to visit during the year. According to research from holiday home insurance company Schofields Ltd, Wales and Cornwall were top for holiday home locations in the UK for 2020/2021, with Scotland coming third.

Following the travel restrictions implemented as a result of the coronavirus pandemic, with many people unable or reluctant to travel abroad, the UK saw a boom in local “staycations” last year. With this in mind, owning a holiday let in the UK could prove to be a lucrative investment, providing the tourism and hospitality sectors can open and remain open as lockdown restrictions are lifted across the UK. 

Using a Holiday Home as an Airbnb or Similar Holiday Let

If you are purchasing a property as a holiday let - or are considering using your own holiday home to let, be aware that most residential mortgage lenders don’t permit short-term lettings. If you have a residential mortgage on the property, speak to your lender before listing your property as a holiday let as you may need to switch to a specialist commercial lender. 

The type of mortgage you will need is a holiday let mortgage. This differs from a holiday home mortgage, where you borrow money to buy a second home that only you will use as a holiday home. A holiday let mortgage also differs from a buy-to-let mortgage, which is designed for buying a property to rent to long-term tenants. 

The attraction of this type of mortgage is that a furnished holiday let is classed a business. This means you can deduct all your expenses from your rental income before your tax assessment, including the interest you are paying on your mortgage.

Buying a Second Home and Renting It Out

Another reason for buying a second home is to rent it out to a long-term tenant, rather than as a holiday home. This can potentially be a great source of income and a worthwhile investment, providing you are prepared to become a landlord. 

Renting out the property to tenants means you will need to adhere to health and safety legislation, carry out a fire risk assessment and resolve any issues. You must also ensure all appliances are well maintained and serviced annually and that smoke alarms are fitted in the property.

If this is something you are considering for a second property, you may want to consider a Buy-to-Let Mortgage. 

What is a Buy-to-Let Mortgage?

For those looking to purchase a second home as an investment, with the objective of letting it out to tenants, a Buy-to-Let Mortgage is an option.

The majority of these mortgages are interest-only, meaning the borrower only pays the interest accrued each month instead of on monthly mortgage repayments. At the end of the term of the loan, the mortgage will need to be paid off in full. As this type of mortgage is considered more “high risk” by lenders, they will come with stricter criteria than other mortgage products. You will also need to provide a higher deposit than a standard residential mortgage. 

This should not be confused by Let-to-Buy mortgages which are designed for those looking to let out their current property and buy a new home at the same time. 

For more information on Buy-to-let Mortgages see: Buy-to-Let Mortgages Explained

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Buying a Second Home to Help a Family Member Get on the Property Ladder

Rising house prices have impacted first-time buyers and a younger generation of budding homeowners, with many feeling that the prospect of owning their own home is out of reach. Currently, the average age for a first-time buyer in the UK is 34, 6 years older than the average age of first-time buyers in 2007, which was 28. For those who can afford to, one option is to buy a second home for a family member, such as a child, who is struggling to get on the property ladder. 

As we’ve stated, this is an option for those who can afford to do so, as buying a second home comes with a number of financial costs and tax implications to consider. For those wanting to help family members buy property, but a second home is not an option, there are alternatives. These include a gifted mortgage deposit, where you would provide some or all of the deposit, rather than outright buying or taking on the mortgage for a house. There is also the option of being a guarantor on the mortgage. 

Advantages and Disadvantages of Buying a Second Home in the UK

Owning a second home certainly has it’s advantages, whether you are using it as a holiday home for yourself or as a means of income. However, there are also a number of downsides to owning a second property which you will need to take into account before deciding whether this option is right for you.

Below we’ve reviewed the advantages and disadvantages of buying and owning a second home: 

AdvantagesDisadvantages 

Potential to provide extra income as a rental property or holiday home 

Higher rate of Stamp Duty

A second property is a sound financial investment, providing house prices continue to rise

Capital Gains Tax when selling the property

Access to a holiday home

A second home will require attention and maintenance 

Potential to help family member, such as a child, get on the property ladder

Holiday let owners are often at the mercy of seasonal trading

Lockdowns across the country have impacted holiday lets and rented properties significantly

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Costs of Buying a Second Home

As with any property purchase, there are many costs of buying a house to consider when buying a second home. These include both the upfront costs of buying the property and the ongoing costs once you own the home.  Below we’ve listed the costs you will have to prepare for when buying a second home:

Upfront Costs

  • A deposit if you are buying the property with a mortgage
  • Mortgage fees, if applicable 
  • Conveyancing costs 
  • The cost of a property survey 
  • Stamp Duty

Ongoing Costs

  • Council Tax
  • Property maintenance
  • Utility bills (if you are using the property yourself)
  • Insurance

What Are the Tax Implications of a Second Home?

When buying a second home, there are a number of tax implications to consider before going ahead. This is a big investment and comes with a variety of financial commitments which you will need to prepare for. Below we have listed the main costs to be aware of when looking to purchase a second home. 

Stamp Duty, LTT and LBTT When Buying a Second Home

Stamp Duty Land Tax (SDLT) is a fee paid when purchasing a home worth more than £125,000 in England and Northern Ireland. Currently, there is a Stamp Duty holiday in place in response to the impact of the Coronavirus on the property market. Both Wales and Scotland have their own equivalents to Stamp Duty which may also apply to your property purchase. 

When you are buying a second home, you will face a higher rate of Stamp Duty. As of April 1st 2016, this is a minimum extra 3% on the property price. The more expensive the property is, the more Stamp Duty you will be expected to pay. 

Higher rates also apply tor Land Transaction Tax (LTT) in Wales. In Scotland, Land and Buildings Transaction Tax apply, meaning you may need to pay an extra 4% on the total price of an “additional property”, in addition to the standard LBTT rates that apply. 

For more details on paying stamp duty, visit: What is Stamp Duty?

Council Tax

You will be required to pay council tax on your second home, even if the property is empty. If you are renting the property out or have gifted the property to a family member, the council tax payments can be paid by them.

However, if the property is your own holiday home or is sitting empty, the council tax will apply. You will be able to get up to 50% off however if the property is unoccupied. 

Capital Gains Tax When Selling a Second Home

When it comes to selling your second home, you may be faced with Capital Gains Tax. This is a tax on any profit you make if the property has increased in value. It is only the “gain” that is taxed, not the overall amount the property sold for. This does not apply to those selling their main residential home but will apply to second homes and Buy-to-Let properties. 

The rate and amount you pay will be based on a variety of factors including your income. There is a Capital Gains Tax tax-free allowance, which is currently £12,300, but be aware that this could change - and increase - in the future. 

For more information on Capital Gains Tax see: What is Capital Gains Tax?

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Buying a Second Property Using Equity Release

It is possible to purchase a second property using Equity Release. This allows you to access money tied up in your property, allowing you to spend the money whilst staying in your existing home. 

The equity is the amount of the house you own outright. For example, if your home is work £200,000 and you have an outstanding mortgage of £100,000, the equity you could potentially access would be £100,000. You do not have to have paid off your mortgage in full to be eligible for equity release. However, you must be over 55 to be eligible and the property must be worth £70,000 or more. 

For more information on equity release see: What is Equity Release and How Does It Work?

Final Step of Buying Process

This article is the last of our home buying guide. Our advice centre features a variety of useful guides to help you through the moving process. The next guide in our series is selling a house.

Adele MacGregor

Having written for PerformanceIN, WalesOnline, Grazia Magazine and The Olive Press, Adele now writes advice articles for home movers, first-time buyers and house sellers alike.