Ultimate Guide to Buying a Second Home: Tips, and Expert Advice

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The Insider @ Houst
Last updated on
June 23, 2023

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Ultimate Guide to Buying a Second Home: Tips, and Expert Advice

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People have a wide range of reasons for buying a second property. It could be for a holiday home, to provide for a dependent, or as an investment for generating income. Regardless of the motive, knowing how to make buying a second home cost-effective is crucial.

Before committing to a second property, you must decide on the financing. Various mortgage options are available based on your financial situation. Releasing equity from an existing property might be the best choice for many, while investors may opt for a buy-to-let mortgage.

Don't forget to factor in additional expenses such as stamp duty and potential capital gains tax in the future. These costs can significantly increase the overall price. Consider ongoing expenses like second home tax, insurance, and utilities for a second home. In this article, we’ll discuss everything you need to know before buying property in UK. So, let’s get started! 

Table of Contents

Reason Behind Getting a Second Property

When venturing into buying a house, it's crucial to investigate the underlying reasons behind this decision. Understanding your intentions will help shape your approach and ensure a successful outcome. Let's explore some common motivations:

Holiday Home in the UK

Dreaming of a picturesque getaway within the borders of the UK? Investing in a holiday home can grant you that coveted sanctuary for idyllic summer vacations or rejuvenating weekend escapes. However, it's vital to consider potential costs such as stamp duty and ongoing maintenance when the property remains unoccupied.

Providing for a Dependant or Family Member

Purchasing a second home to accommodate your loved ones offers a chance to provide ongoing care and support. However, before proceeding, it's advisable to seek expert tax advice. Gifting a property to your dependant can trigger capital gains tax implications, and if you pass away within seven years of the gift, potential inheritance tax may also arise.

Buy-to-Let

Exploring the world of buy-to-let properties can open doors to a valuable additional income stream through rental yields. It's essential to conduct thorough research on the associated costs and weigh them against potential profits from rental income. Consult an advisor for a second home mortgage if considering a buy to let mortgage, as higher deposit requirements may apply compared to residential mortgages.

Buying a Second Home Abroad

Venturing beyond domestic boundaries to buy property abroad adds an element of excitement and diversity. However, financing such a purchase may involve additional complexities. Remortgaging or releasing equity from your current home can fund your overseas holiday home, but it's crucial to seek expert advice regarding taxes and regulations in your chosen country. This way, you can navigate any potential charges or fees with confidence.

Achieving Your Second Property Dream

By fully understanding the motivations behind purchasing a second property and carefully considering the associated costs and implications, you can embark on this journey with clarity and confidence. Expert guidance and thoughtful planning will pave the way to a successful and fulfilling second property acquisition, regardless of your chosen path.

Mortgage Options for Your Second Home

When it comes to purchasing a second property, there are several financing methods. Let's explore the various approaches:

Cash Payment

You can opt for a direct cash payment if you have sufficient funds readily available. Using your resources, you can swiftly acquire the second property without the need for additional financial arrangements.

Remortgaging Your Existing Property

Another viable option is to remortgage your current home. You can release equity from your property to fund the purchase of your second home. This approach allows you to capitalise on the value you have built up in your primary residence to finance the acquisition.

Equity Release

For older homeowners, equity release presents an intriguing option. This involves accessing the equity tied up in your primary residence to finance the purchase of a second property. You must continue residing in your primary residence for at least six months yearly. 

Buying a Second Home Using Equity 

By exploring these mortgage options, you can find the approach that best suits your financial circumstances and goals. Whether it's using cash, remortgaging, or considering equity release, each method offers a unique pathway to acquiring your second property. 

Remortgaging for a Second Home

If you own your house outright and have your sights set on purchasing another property, remortgage offers a viable alternative to taking out a second mortgage. By tapping into your existing home's equity, you can leverage its value to fund your second home purchase. 

Calculating the equity in your property is simple. If your home is mortgage-free, your equity equals your house's total value. However, if you have an existing mortgage, your equity is derived by subtracting the remaining mortgage debt from your property's current value.

If you still have a mortgage on your first property, checking for early repayment charges that may make remortgage costly is essential. Waiting until the end of a fixed-term deal before borrowing more could be a better option. With careful planning and expert guidance, you can confidently embark on buying a second home.

Releasing Equity for Your Second Home

For borrowers aged over 55, equity release presents an appealing option. The most common form is a lifetime mortgage, offering access to tax-free funds from your home's equity without selling it.

Unlike remortgaging, equity release doesn't involve monthly payments, ensuring your income remains unaffected. Instead, the borrowed amount accumulates interest over time and is typically repaid when you transition into long-term care or pass away, at which point your home is sold.

Releasing equity to purchase another property is an attractive solution for many older borrowers, as it unlocks cash without selling their home. A lifetime mortgage for equity release is suitable only if you intend to maintain your current property as your primary residence. Make a well-informed decision and enjoy the financial freedom of releasing equity for your second home aspirations.

Buy-to-Let Mortgage

You'll need a buy-to-let mortgage. You have two options: capital repayment or interest-only. While both have merits, interest-only mortgages have become popular.

Buy-to-let lenders usually need a 25% deposit. Mortgage rates and fees for buy-to-let properties are generally higher than residential mortgages. This is due to the added risks involved in the rental market. Remember that buy-to-let mortgage is different than holiday let mortgage

To secure a buy-to-let mortgage, show the potential rental income your property will likely generate. Lenders are keen on assessing the profitability of your investment. Moreover, they will also evaluate your ability to manage repayments comfortably, both presently and in the future, should interest rates experience an upward shift.

Additional Costs

Stamp Duty for Second Homes

If you already own property, you'll be subject to a higher stamp duty charge for your second home. Typically, this means paying an extra 3% above the standard rates.

For example,  you're purchasing a house in England worth £600,000. The stamp duty payable would be £20,000. This calculation breaks down as follows: no stamp duty on the first £125,000, 2% on the next £125,000, and 5% on the remaining £350,000.

However, if the same property is intended as your second home or a buy-to-let investment, the stamp duty payable increases to £38,000. This shows the 3% surcharge on the first £125,000, 5% on the next £125,000, and 8% on the remaining £350,000.

Renting out Your First Home and Buying a Second Home

Engaging with your mortgage lender is crucial when you buy a holiday let or rent out your first home. Discuss renting your home and explore options, including remortgaging to a buy-to-let mortgage if required. 

Selling your first home in the future may result in capital gains tax obligations, depending on the rental duration. Seek professional guidance to ensure compliance with any tax liabilities. Addressing these aspects allows you to rent out your first home while buying a second property.

Why Should You Hire Houst for Your Rental Property Management?

Houst is your reliable Property Manager for Airbnb, VRBO, booking.com and other platforms in effectively managing your medium-term or short term rental property. With our comprehensive range of services, we simplify the entire process for you. We handle everything from bookings and guest management to ensuring property maintenance and optimal pricing. Our expert team provides seamless financial management, offers legal and compliance support, and is available round-the-clock to address your needs. Trust Houst to simplify rental property management, allowing you to enjoy the benefits of ownership with the peace of mind.

The Insider @ Houst

The Insider @ Houst

The Insider team at Houst is dedicated to providing up-to-date and relevant information on short-term rentals. If you have hosting inquiries, please write to us at expert@houst.com. For guest inquiries, reach out at guest@houst.com. We are here to help you navigate the world of short lets and look forward to assisting you with your needs.

The Insider @ Houst

The Insider @ Houst

The Insider team at Houst is dedicated to providing up-to-date and relevant information on short-term rentals. If you have hosting inquiries, please write to us at expert@houst.com. For guest inquiries, reach out at guest@houst.com. We are here to help you navigate the world of short lets and look forward to assisting you with your needs.

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