Buying a second home: Our guide for second property buyers

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Whether you’re looking for a holiday retreat, or want to bolster your income with a buy-to-let, buying a second home can be an alluring goal for many homeowners.

While you might be familiar with the house buying process, there are a number of rules, steps and tax implications when buying a second home that are important to be aware of.

In this guide, we’ll dig into the details and explain the key things you’ll need to consider when buying a second property.

How much will a second home mortgage cost?

In addition to the overall purchase value of the property, there are two main implications for second homes that you’ll want to be aware of:

Stamp duty

Stamp duty land tax (SDLT)–or Land and Buildings Transaction Tax in Scotland, and Land Transaction Tax in Wales—is a tax payable on any residential property worth more than a certain amount.

When buying a second home, your original property becomes your “primary residence” in terms of tax, and the second property becomes your “additional” or “secondary residence”.

You’ll be charged stamp duty at a higher rate for your second property, which will vary based on the value of the secondary residence and whereabouts in the UK it is based.

You can find full details of the differences between the different UK regions, including stamp duty rates, in the “Buying across the UK” section further on in this guide.

Capital gains tax

It’s also worth keeping in-mind that your second home will be liable for capital gains tax if you decide to sell it.

If the value of your second property has increased beyond your capital gains allowance, which is currently £12,000 per person, you will be required to pay a percentage of the increase in taxes. This can be up to 18% of the value increase, or 28% if you are a higher or additional rate taxpayer.

Council tax

With so many other factors to consider, it’s easy to overlook council tax.

Council tax will be payable on second homes, defined as furnished properties where no one lives and the owner has a primary residence elsewhere. If you are renting out the property, then the tenants will be responsible for paying the council tax.

The rules for council tax on second homes are as follows:

  • During the first 6 months of ownership, the following special rules apply for second homes. For one month, the property will be exempt from council tax. You’ll be required to pay 50% of the council tax rate for the next 5 months. After the first 6 months, the full council tax for the property will need to be paid.
  • If you are renovating a second home and making major structural changes to the property, you will have to pay 50% of the council tax bill for up to 12 months. You’ll need to pay the full amount after this.
  • You will be charged a council tax rate of 150% if you leave the property empty but fully-furnished for more than 2 years.
  • If you own a property that has been left empty and unfurnished for more than 6 months, on the other hand,  you might be able to claim a discount of up to 50%.

Why do you want a second home?

With the basics of stamp duty and tax implications covered off, ask yourself why you are buying a second property, as this will dictate how each of these factors affects you.

The most common reasons for buying a second home are as follows:

  • Owning a holiday home, whether a countryside escape for the weekends or a property abroad for you to spend your summers at
  • Investing your savings in property, with the hope that its value will grow in the long-term
  • Property development and resale
  • Buy-to-let
  • Helping a relative to get onto the property ladder

Depending on which of these applies to you, the implications will vary.

Buying to let

One of the most common reasons for owning more than one property, buy-to-lets can earn you additional income while also paying off the property’s mortgage.

The most significant thing to keep in-mind here is that you’ll need a buy-to-let mortgage. The key differences between a buy-to-let mortgage and a standard mortgage are:

  • Fees and interest rates tend to be higher
  • The minimum deposit will vary between 20% – 40%, with 25% deposits being fairly common
  • They will often be interest-only, meaning you only pay the interest each month and then repay the original loan in-full at the end of the term

If you already purchased a second home with a regular mortgage and now want to let it out, you’ll need to remortgage onto a buy-to-let mortgage. You won’t be able to let the property out without this. Depending on how much equity you have in your home, you may need to top up your deposit. For more information, check out our FAQ, Will I need another deposit?

When buying a second home to rent out, it’s important to keep in-mind that there will be times when there is no rent coming in. You’ll need to be able to cover the costs and keep up any repayments on the mortgage during these periods.

Buying a holiday home

Buying a property for your holidays can be very appealing if you like to return to the same part of the world regularly.

You might even be able to rent it out for the times of year when you’re not there and—when renting for short periods to other holidaymakers—a residential mortgage may be sufficient if you only intend to rent it out for a few weeks per year. If you plan on renting it out for longer, you may need a “holiday let” mortgage.

Renting out a holiday home can have tax implications for any profits, as it’s a form of income. So, if you’re thinking about using the property in this way, it’s best to discuss it with a financial adviser. If you let out the home for more than 105 days per year, you might be able to claim some tax relief.

If you’re buying a purpose-built property, these may not have planning permission to be residential all year round, so it’s worth keeping in-mind if there’s a chance you may move there permanently someday.

Buying to help a family member get onto the property ladder

With the housing market as fast-moving and competitive as it has become in recent years, it’s no surprise that first-time buyers increasingly are turning to parents for support in getting onto the property ladder.

If you’re a homeowner and you are helping a relative to buy a home in your own name, this is counted as a secondary residence and you’ll be required to pay a stamp duty surcharge.

Putting a property fully in the first-time buyer’s name would allow you to save money on stamp duty. However, you should only do this if you are comfortable to do so, as you wouldn’t have any legal right to the property.

Buying across the UK

Depending on where the second home is based, you might have to adhere to different rules.

Buying a second home in England or Northern Ireland

When buying a second home in England, you will be required to pay Stamp Duty Land Tax (SDLT) as outlined earlier in this guide.

The amount of stamp duty you pay for your second home will depend on the value of the property. Your solicitor will let you know exactly how much stamp duty you’ll be charged, but to give you a guide, we’ve outlined the current rates (as of October 2021) as stated on GOV.UK.

PURCHASE PRICE OF PROPERTY STAMP DUTY RATE STAMP DUTY RATE FOR ADDITIONAL PROPERTIES
Up to £125,000 0% 3%
£125,001 to £250,000 2% 5%
£250,001 to £925,000 5% 8%
£925,001 to £1.5 million 10% 13%
Over £1.5 million 12% 15%

 

Stamp Duty Land Tax (SDLT) rate in England and Northern Ireland, as of October 2021. Source: GOV.UK

Buying a second home in Scotland

Rather than stamp duty, second homes in Scotland are required to pay Land and Buildings Transaction Tax (LBTT). This is similar to stamp duty, but with slightly different rates.

PURCHASE PRICE OF PROPERTY LBTT RATE LBTT RATE FOR ADDITIONAL PROPERTIES
Up to £145,000 0% 4%
£145,001 to £250,000 2% 6%
£250,001 to £325,000 5% 9%
£325,001 to £750,000 10% 14%
Over £750,000 12% 16%

 

Land and Buildings Transaction Tax (LBTT) rate in Scotland, as of April 2021. Source: gov.scot

Buying a second home in Wales

The equivalent of stamp duty in Wales is known as Land Transaction Tax (LTT) for residential property purchases, replacing stamp duty in April 2018.

PURCHASE PRICE OF PROPERTY LTT RATE LTT RATE FOR ADDITIONAL PROPERTIES
Up to £180,000 0% 4%
£180,001 up to £250,000 4% 8%
£250,001 to £400,000 5% 9%
£400,001 to £750,000 8% 12%
£750,001 to £1.5m 10% 14%
Over £1.5m 12% 16%

 

Land Transaction Tax (LTT) rate in Wales, as of October 2021. Source: gov.wales

What are your options to finance a second home?

When it comes to financing the purchase of your second home, assuming that you don’t have the cash to pay for the property in full, you will be looking for a mortgage.

In order to get a second mortgage, you’ll ideally want the following:

    • A sizable deposit – You can typically expect to make a downpayment of 25%, being able to put forward more than this may help your chances of a better offer.
    • Demonstrate a reliable and healthy income – Can you show lenders that you can afford the repayments of your current mortgage and the second mortgage?
  • Details of expected rental income (if buy-to-let) – If you are buying-to-let, mortgage providers will want to know how much you plan to make from rent.
  • Strong credit score – Consistently making repayments on your current mortgage can be an excellent way to improve your credit score.

You’ll also want to consider the additional costs that come with property purchase, including:

  • Arrangement fees
  • Valuation costs
  • Legal fees
  • Early repayment fees
  • Stamp duty

Buying with equity (remortgaging)

You can also pay for your second property with the equity you’ve built up in your primary residence by remortgaging.

To do this, you’ll want to check if you have enough equity in your home to cover the 25% deposit of the second property. For example, if your current property is worth £450,000 and you have £250,000 remaining on your mortgage, then you have £200,000 of equity in your property.

If this is enough to cover the deposit on the second home, you can remortgage to release the money, which you can then use in the purchase of the second home.

How to find a second home mortgage

With so many lenders and mortgage providers on the market, it pays to shop around for your second home mortgage.

Freedom Mortgages is our dedicated mortgage broker team, who search a number of providers to help you find the best second home mortgage for your needs.

Here’s what you get access to:

  • A range of exclusive deals that you can’t access direct from a lender
  • Mortgages from over 90 UK lenders with over 12,000 products
  • Expert advice from our qualified advisers to find the right deal for you
  • Free protection advice for every customer

To get started, simply reach out to our friendly expert mortgage advisers and they’ll get in touch to talk through your options. If you would like to find out more about buying a second home, you can find the answers in our FAQs:

 

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