Buying a Second Home

Written by Adele MacGregor Reviewed by Emma Lunn

12th Mar 2021 (Last updated on 11th Apr 2024) 9 minute read

Why Do People Buy a Second Home?

Here are just a few reasons why people purchase a second home or property:

• Holiday home
• Rural retreat at weekends or city location for work
• Investment for family members
• Investment to sell for a profit in the future
• As a Buy to Let property

Thinking carefully about why you want to purchase a second home and what you want to get from it will ensure that you’re making the best decision. This is because the reason why you wish to purchase a second property can dictate what kind of mortgage scheme you can take out.

Advantages and Disadvantages of Buying a Second Home

When buying a house, you need to make sure that you weigh up the pros and cons so you can make a fully informed decision.

Here are the advantages of buying a second home:

• Extra income as a rental property or holiday home
• Sound financial investment
• Access to a holiday home
• Can help family members get on the property ladder

Here are the disadvantages of buying a second home:

• Higher rate of Stamp Duty
• Capital Gains Tax when selling
• Attention and maintenance required
• Seasonal trading issues

Costs of Buying a Second Home

When buying a second home, you need to make sure that you are able to afford the various costs before submitting your mortgage application. The cost of buying a house will be higher if you are purchasing a second property. This is because you need a larger deposit with higher interest rates and fees. You will also need to hire a conveyancing solicitor when buying a second home as you did for your first home.

Here are the upfront costs of buying a residential freehold second home in England at the UK house average of £277,000:

The total upfront cost can differ depending on what you will be using the second home for as well as lender costs, solicitor fees, and what kind of survey you choose.

Additional Costs of Buying a Second Home

You will need to pay more costs when buying a second home. These additional costs include a stamp duty surcharge on top of the regular stamp duty land tax that you will need to pay. This is 3% in Northern Ireland and England and 4% in Wales and Scotland.

Other costs include a deposit of around 25% if you plan on renting out the property. This means you will need to put down more money upfront if you want to take out a mortgage.

If you already have a mortgage on your first home or primary residence, you will have to meet affordability criteria to ensure that you’re able to pay for a second mortgage. Remember that mortgage rates tend to be higher when purchasing a second home.

If you are purchasing a Buy to Let property, you will need to find a Buy to Let solicitor who will guide you through the conveyancing process. Since Buy to Let properties require more paperwork to be submitted, your solicitor may charge you extra with the average cost being £2,271.

There are also maintenance costs that you will need to consider and other potential bills. This includes a capital gains tax bill if you sell the second home for a higher price than you paid.

How to Get a Mortgage for Second Homes

A lot of people believe that in order to take out a mortgage on a second home, you need to have paid off your current mortgage. However, this is not the case as you can have two mortgages running at the same time.

In order to take out a second mortgage, you will need to make sure you meet the following criteria:

A Larger Deposit

As stated earlier, you will need to put down a larger deposit when purchasing a second home. This is because lenders want to ensure that you are able to provide plenty of equity so they can comfortably take on the risk of providing the mortgage.

Minimum requirements may differ depending on the lender. However, here are the average minimum deposits that you will need for each mortgage scheme:

Credit Score

You will need to ensure that you have a good credit score. This is because lenders want to make sure that you are a trusted borrower before approving your application. Providing documents that can prove your good credit score will show your lender that you are capable of paying back debts. This can be your existing mortgage, credit cards, or other loans.

Projected Business or Rental Income

If you plan on letting out your property, you should provide documents showing the projected income. This will show the lender whether the mortgage is a good investment or not. This is because both you and the lender need to make sure that the second property is going to make money.

On the other hand, purchasing a holiday home may not be seen as a good investment if you don't plan on letting it out. However, if you plan on selling it in the future, the lender will view this positively.

Schemes for Getting a Mortgage for a Second Home

The reason why you want to purchase a second home will dictate what kind of mortgage scheme you can opt for. There are different kinds of mortgages available, but here are the main schemes you need to know about:

Second Home Mortgage

If you plan to purchase a second home as a residence or investment, you can take out a regular second home mortgage. What makes these mortgages different from a regular first home mortgage is you will need to put down a larger deposit.

Most lenders will accept a minimum of 15% of the property value, but some may ask for as much as a 25% deposit. In most cases, second home mortgages come with higher fees and interest rates compared to your first home mortgage.

As previously mentioned, you will also have to pay stamp duty surcharges on your second home.

Holiday Home Mortgage

This is for those who plan to regularly let their property out as a holiday home with the property remaining unoccupied when it is not being let out. Not every lender or building society offers Holiday Home Mortgages and judges every application individually.

Most lenders who provide Holiday Home Mortgages will ask for a minimum 30% deposit. Those wanting to let out their property as an Airbnb will need written permission from their lender before going ahead.

Buy to Let Mortgage

A lot of people purchase a second property with the intent to rent it out. If this is the case, you will need to apply for a Buy to Let Mortgage. This mortgage comes with higher fees and interest rates, requiring a minimum 25% deposit.

However, you may find that your mortgage is interest-only as it can be made for this form of repayment. This depends on the lender and what kind of Buy to Let Mortgages they offer.

If you purchase a second property initially as a residence before deciding to let it out, you will need to talk to your lender. Not all of them will give you permission and if they do, they may charge you an administration fee. The best way to prevent any issues is by checking your lender’s terms and conditions beforehand.

Let to Buy Mortgage

Those who want to move to their second property but want to rent out their first home will need to look into Let to Buy Mortgages. This mortgage requires a higher deposit as you will need a minimum of 20% of the property value, although lenders may ask for more.

Most Let to Buy mortgages allow you to borrow up to 75% to 80%, depending on your deposit. Those struggling to sell their house but eager to move may be advised to take out this mortgage as it can help ease the financial stress.

When you take out your Let to Buy mortgage, you will be able to rent out your first property. The interest rates and fees change regularly as not all lenders offer Let to Buy mortgages. Therefore, it's best to look into each lender carefully and ready through their terms and conditions.

Can You Re-Mortgage to Buy a Second Home?

You can re-mortgage to buy a second home, but you will need to express why you're purchasing the property to your mortgage advisor. This allows them to find you the correct mortgage, and determine whether you're eligible.

Whether the property is being purchased on the basis of investment or for personal reasons, re-mortgaging is possible.

The Tax Implications of Owning a Second Home

When owning a second home, there are two main tax implications to consider before going ahead. These are council tax and capital gains when selling a second home.

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.

You can apply for a discount of up to 50% if the property is unoccupied. If the home is furnished as a holiday let, it can qualify to be a small business. You are not required to pay council tax on such properties.

Capital Gains Tax When Selling a Second Home

If you sell your second property, you will have to pay Capital Gains Tax when sold. The amount of Capital Gains Tax you will end up paying is dependent on how much profit you make after the sale.

Basic-rate taxpayers will pay 18% in Capital Gains Tax, while higher-rate taxpayers will pay 28%.

Buying a Second Home Using Equity Release

You can buy 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.

If your home is worth £200,000 and you have an outstanding mortgage of £100,000, you have £100,000 in equity. You do not have to have paid off your mortgage to be eligible. You must be over 55 to be eligible and the property must be worth £70,000 or more.