AD | Second home ownership in the UK has been on the rise in recent years. According to the last pre-pandemic English Housing Survey, by 2019 there were nearly 500,000 second homes registered in the UK. And the COVID-19 effect has only exacerbated the trend for buying a second home. Whether you’re mulling buying a holiday home, a rental investment, buying for a family member, or a let-to-buy while you sell your main home, there’s a lot to consider before moving forward with any purchase.
Why Did COVID-19 Prompt a Boom in Buying a Second Home?
Given a choice between staying cooped up in a one-bedroom apartment for months, or relocating to the country or coast, which would you choose? Many employers were bounced into allowing remote working for their staff, which made it easier for people to relocate out of the cities. Other factors driving second home purchases in the UK were lower interest rates and the stamp duty holiday, which saw 1.3 million buyers in England pay no stamp duty on the first £500,000 of their house purchase. And Brexit making it more of a challenge to buy a second home in Europe probably had an effect too.
Why Do You Want a Second Home?
With buying a house always featuring as one of the top ten most stressful life events, this is a question well worth asking.
- Are you looking at buying a property to rent out for investment, or to bulk up your pension pot (buy-to-let)?
- Are you buying a holiday home to escape to?
- Are you upsizing for family or homeworking reasons, or downsizing for retirement?
- Are you buying a second home and renting out the first one while you try to sell it (let-to-buy)?
- Are you buying to help someone else get onto the property ladder?
Whatever your reasons for considering multi-property ownership, here’s what you need to know before buying a second home.
Is Now a Good Time to Buy a Second Home?
A little research into little research into where the UK property market might be headed in 2023 is in order here. Various reports in The Times last month indicated that while property prices are expected to drop this year, they’re unlikely to hit rock bottom. More people are using cash or equity release to buy a second home than in previous years, although higher mortgage rates, and the cost of living pressures all mean house price growth will remain lower for longer. Some experts believe if you can hold out until 2024, it might be worth your while to do so.
On the other hand, the i newspaper quoted the Office for National Statistics as saying 57% of fixed rate mortgages coming to an end this year were taken out when interest rates were below 2%. As of the beginning of February 2023, the Bank of England has set interest rates at 4%, meaning around 1.4 million mortgage holders face an increase of thousands of pounds in their annual repayments. So, is buying a second home a good idea?
Getting a Mortgage For a Second Home
Unless you’ve come into an inheritance or won the lottery, chances are you’ll need to think about getting a mortgage if you’re buying a second home. Depending on why you want to buy another property, the first thing to do is to find a mortgage repayment calculator to plug in your budget and work out what you can afford to borrow. Ideally a mortgage calculator like this one that allows you to link to a specific calculation with the results already filled in.
The additional graphs of loan repayments, along with monthly and yearly amortisation tables, are also helpful, as are the range of other calculators. The remortgage one would be useful if you’re considering refinancing, for example. Particularly for new purchases or remortgage applications, as the majority of lenders will allow you to switch to a new, lower rate rather than changing your deal entirely.
Tip: be aware that a second home may require a different kind of mortgage to the one you already have on your primary residence. And you’ll need proof of a good income and a bigger deposit too, typically around 25% of the property value, as your lender will want to minimise their risk.
What Tax Do You Pay When You Buy a Second Home?
There are three main tax implications of buying a second home in the UK, which you also need to factor into your calculations.
Stamp Duty on Second Homes
Unfortunately, you do have to pay more stamp duty when you buy a second home than you did when purchasing your primary residence. The table below sets out the stamp duty rates payable on any property worth more than £40,000, up until 31 March 2025. The good news is that it doesn’t apply to caravans, mobile homes, or houseboats though. Maybe it’s time to revisit those road trip dreams… 🙂
Council Tax on Second Homes
Council tax is payable on second homes too. Empty properties are exempt from council tax for one month, after which a charge of 50% is payable for the next 5 months, and then the full council tax becomes payable. You can check the Government website to see if you’re eligible for any further discounts after this, provided your home meets certain criteria.
Capital Gains Tax on Second Homes
If and when you come to sell your second home, you may also become liable for capital gains tax. The current allowance is £12,000 per person, so if your property increases in value beyond this figure, you’ll have to pay up to 18% (or 28% if you’re a higher rate taxpayer) of any increase to HM Revenue and Customs.
Other Home Buying Resources You May Find Useful
Hopefully, this short guide to buying a second home has given you an indication of what’s involved. A couple more helpful home buying guides you may wish to look at include, “Buying a home” from Citizens Advice, and “Buying a second home” from the Home Owners Alliance. And even though the Government’s Help to Buy scheme ends on 31 March 2023, you could try out their Own Your Home tool to see if you’re eligible for any of their other schemes as well.
While there are pros and cons to buying a second home, it can be a really exciting and profitable proposition, as long as you do your research and plan ahead. So, good luck, and happy hunting for your new property portfolio!
* This is a sponsored post – please see my Disclaimer.
There’s so much useful information here including relevant questions for the people who plan on taking up a second house. I too think holding off on buying a property til next year could be worth the wait. I also want to add that I like it when it’s easy to make calculations on mortgage and things like levies, etc. This post is brilliant.
Jeannie x
Thank you so much, Jeannie, that’s great to hear my post was useful – and yes, I agree, calculators make things SO much easier!
This is a really informative post Lisa, for anyone looking to go down this route. We’re only just getting around to buying our first home, haha. But this would be a dream.
Thank you, Jenny – there’s a lot to consider, some of which I didn’t know about before researching for this post!
These are really great tips. I think when you buy a property and fix it up, if you ever decide to sell it you can get value for the work you have done on it. I loved reading this. I hope you’re having a great start to your week.
Thank you, Heather, glad you found it helpful.
Very informative! You mentioned everything that should know when buying a home. Someone got to keep an eye on the market.
Thank you so much 🙂
Buying a second home is a dream. I hope one day I will be rich enough to buy a cottage in Lake District. Hehehe ^_^
That’s a wonderful goal to have, the Lake District is gorgeous!
Hey Lisa, it’s a very comprehensive article on buying a second home. A lot of points mentioned in it are applicable to a second home in any demographic location. Thanks for sharing!
Thank you so much, I’m very happy to hear it translates across other locations too 🙂
this is really informative Lisa! there’s so much about buying a second home that’s never occured to me, and it’s definitely something I’d love to do if I’m lucky enough x
Thank you, Kayleigh, I’m so pleased it was useful 🙂
A number of my friends have purchased second homes in recent years. This is a really useful post for anyone who is unsure about making this sort of investment. Thanks for sharing these interesting facts too!xxx
Thank you, Ashley, that’s very good to hear – it’s definitely not an investment for the unwary! x
It really would be so much fun to have a second home. Thank you for helping to lay out some of the financial implications. It makes it so much easier to assess what I can actually do.
Thank you, Heidi, yes, that was my aim, to make it clear what’s really involved!