When you think of buying a second home, you probably imagine a luxurious vacation home in the mountains, or maybe even a cosy cabin in the woods. Stop right there, and think about it! Do you want to buy a second home for vocational purposes or are you looking for something more practical?
Buying a second home is one of the best ways to diversify your investment portfolio. In this article, we’ll go over some of the unique considerations you’ll want to think about when buying your second home.
What to know before buying a second home
If you’re questioning how to buy a second home – there are many things you should consider before making the big leap.
Here are some questions you need to ask yourself before buying a new home:
- What type of home do you want?
- Are you looking for something rural, suburban, or urban?
- A cottage in the woods or a condo overlooking the city skyline?
- How much can you afford to spend?
- Are there any special features that will be important for your family?
- How much will it cost to maintain your second home?
- Do you already have insurance for your primary residence that covers additional properties too?
- Can you manage taxes and other expenses like utilities and other property management fees?
What is the best way to buy a second home?
The best way to master real estate is by buying an investment property. Visiting some property auctions can help see more deals.
However, as a first step, you need to decide if it’s actually the right time for you to buy a second home.
If you already own one property and want to buy another as an investment, be aware of the tax implications involved with the ownership of multiple properties.
In some cases, it may make sense for you to hold off on buying your second home until after you sell your current one.
Therefore, if you decide to buy a second home, there are several ways to move forward. You can:
- Buy directly from the seller
- Use an intermediary like a real estate agent or broker
- Buy a property at auction from either the UK gov or a company
Reasons why you should buy property as an investment
- Real estate investments have historically been one of the safest forms of investment. In fact, over the last century, housing has been one of the best-performing forms of secure investments
- The benefits that you get from owning a rental property can be much greater than just buying a house for yourself and living in it. You can become financially independent by using your rental income to help pay off your mortgage over time
- You can also increase your wealth by making money analysing the average rental yields of an area and collecting higher rents throughout the year
Do you need a deposit to buy your second house?
The deposit on a second property mortgage is generally between 15% and 25%.
If you are questioning how to buy a second home, you may want to consider whether or not you need to make a deposit. If you’re buying a new house, and you’ve got the cash ready to go, then there is no need for a mortgage and, therefore, a deposit.
Similarly, there are also some circumstances, like when there are tenants in situ, where you might be able to get away with not having a deposit:
- If your credit score is high enough, lenders might let you skip paying one altogether
- If you have enough money in savings to cover the down payment and closing costs, then it’s possible that lenders won’t require an additional payment from you
However, if these exceptions don’t apply to you, then yes, you’ll need to make a deposit upfront before signing the mortgage to buy your dream home.
How much deposit do I need to buy a second house?
When you’re purchasing a second home, it’s important to have enough money in your savings account to cover closing costs and the down payment. The amount of money you’ll need for the down payment will depend on the type of loan you choose and other factors like your credit score.
The minimum down payment for “bank of England” loans is 3.5%. The minimum down payment for conventional loans is typically 10%, but it can range from 3.5% to 20%.
The amount of money you’ll need for closing costs will also vary depending on what type of loan you choose and what happens during the approval process. Some fees may not be included in closing costs, such as recording fees or prepaid interest payments.
Can I buy another property if I already have one?
Yes, you can. It depends on the type of property you already have and what you plan to do with it.
If you’re wondering How to buy a property, or if you own a house and want to know how to buy a second home, you can do either as long as your mortgage is paid off. Also, if your current home has enough equity built up to cover the cost of buying a new one – you can go ahead with the purchase.
Similarly, if you own an apartment building and want to buy another one, you can do so as long as you have earned enough money from your existing building to cover the cost of both properties in the future.
Click here to look at some of the best available options.
How easy is it to get a second property?
The first step if you’re wondering how to buy a second home is to decide if it’s the right move for you.
Here is a step-to-step guide on how to do so:
1. Set your goal
Do you want to rent out your second home, or use it as an investment? If you plan on renting it out, then you will probably have an easier time qualifying for a mortgage loan.
2. Look for a mortgage lender
If you plan on using your second home as an investment property, then you may need to look around for lenders that specialize in commercial real estate loans.
Lenders will often require more documentation than those who offer conventional residential financing.
Click here to find out more about letting agents.
3. Check your credit score and get pre-approved
Before applying for any type of loan, check your credit report and make sure that there are no errors or incorrect information listed on it. You can order your free annual credit reports too.
You should also check with each lender if they require proof of income before they issue an approval letter.
How to buy a second property using equity
Buying a second home is a great way to diversify your portfolio and build equity in real estate. However, you will always need some help to buy properties before you jump into the market.
Make sure to ask yourself:
- Are you prepared to take on the responsibility of maintaining another property?
- How much time are you willing to spend on the second home once it’s purchased?
When deciding if it is a good time to make a purchase for you, take a look around the market and judge if you have enough cash reserves in case things go south again. You don’t want to be like other homeowners who bought at top dollar only to see their home values plummet.
In addition, find out if there are any special requirements when buying a second property. Some states in the UK require sellers to disclose any defects with the property before selling it, while others may require sellers to pay for certain repairs prior to completing the sale. Similarly, some may ask sellers to provide buyers with an estimate of how much it will cost them each year in maintenance fees and taxes.
Mortgage calculator for buying a second home
If you’re thinking to buy a house in addition to the one you have, you may be wondering exactly how to buy a second home, or how much it’s going to cost you.
It’s important to plan for the future and understand your financial obligations before making such an investment decision. Finding the right mortgage calculator can help you make an informed decision about whether or not you can afford to buy the property that you want.
The first step towards property valuation is to determine how much money your monthly payment will be after taxes, insurance, and maintenance costs. You’ll also need to calculate how much money you’ll have left over at the end of each month so that you know how much money you can put into savings for emergencies or retirement.
A good house mortgage calculator will allow you to figure out how long it will take for your loan payments to pay off your mortgage, which is important because this allows you to see if your monthly payments are affordable and achievable over time.
How to buy a second home to start a business
When you buy your first home, you think of all the ways it can be used. You might have an idea of what you want to do with it, but that doesn’t mean everything will work out as planned.
For example, if you want to know how to buy a second home as an investment property, there are a few things to consider before you make the purchase. The most important thing is to have a plan in place before you put down any money.
Here are some things to consider to understand how to buy a second home:
Consider the location
If you’re considering buying a second home for rental purposes, the location of the property is a key criteria to drive your decision. You want to find an area that has good schools and job opportunities for potential tenants. You might also want to consider how close it is to any major cities or tourist attractions that might be beneficial for renters.
Consider how much space you need
If you’re planning on using your second home solely as a vacation spot or weekend getaway, then having too much space may not be necessary. However, if it’s going to be used as both a vacation spot and an investment property then having enough space so that multiple people can stay comfortably during their stay can be beneficial and attract more renters.
Why do you want a second property?
There are many reasons why people want to buy a second property. Some are looking for extra income such as buy-to-let, others want to live somewhere affordable but also use another property as an investment, while others just want to have more space.
Here below are some of the most common reasons people buy a second property.
Buy a second home to rent it out and earn extra income
If you have a good job and you can cope with the monthly mortgage payments, then buying a second property could be a great option for generating extra income.
You’ll have to pay taxes on your rental income and cover the costs of maintaining it, but the benefit is that you’ll get paid every month while you pay off your home loan with someone else’s money.
Buy a second home to live in it and rent it later on
Your first home will likely be where you raise your family and put down roots, so if you want to move away from there, later on, renting it out is a good way to offset some of those costs or even make money from it.
This is especially true if you’re moving into a bigger place, selling at a profit can help fund moving expenses for when you’re ready to sell again in the future (or simply move into another home).
Buy a second home as a rental property
Buying a rental property can be an excellent investment, but it’s not for everyone. If you’re considering buying a rental property, here are some things to consider:
How to buy a second home in the right location?
You’ll want to choose a property in a neighbourhood that has good schools and access to public transportation. You may also want to look for properties near local amenities, like parks or shopping centres.
How to buy a second home in the right price range?
Find out how much similar homes in the area have sold recently. Also, look for home insurance opportunities. You can do this by talking to your real estate agent or by contacting a mortgage broker.
A real estate agent will also be able to help you determine if you’re paying too much for an apartment building or other type of rental property.
How to buy a second home of the right size?
Make sure your home won’t be too large or too small for the number of tenants you plan on renting it out to. It’s better to have too much space than too little space because you’ll need extra rooms for storage space, laundry facilities, and more rooms for guests who stay overnight, especially if your property is part of a vacation resort community where guests often visit during their stay at the resort.
How do I let out my second home?
If you’re looking to rent out your second home, there are a few things you should consider before advertising it.
In addition to the potential tenants, you will also need to consider what your local authority and the insurance company will think about the venture.
And if you’ve got a mortgage on the property, you’ll need to find out if any of its lenders allow holiday lets.
The first thing to do is set up a limited company for the rental business. If you already have one for your main income-generating activity, that’s fine, but it’s worth setting up another one so that there’s no confusion between them when it comes to accounting and tax returns.
If you don’t have enough money in the bank to start paying yourself a salary straight away, make sure that any money coming into the business is put into a separate bank account so it can be used only for expenses related to letting out your second home.
Buying a second home and renting out the first
Buying a second home and renting out the first can be a great way to make money. But it’s not for everyone.
If you’re thinking of how to buy a second home, as the first one was built to rent out, here are some things to consider:
- Is there enough demand?
The most important factor is whether there is enough demand for rent in your area. You need to be sure that there will be enough renters coming through to make it worth your while.
- Are there enough resources?
How to buy a second home if there are not enough resources?
You need to have the time and energy to maintain two properties, especially if they are far apart. If you don’t have someone on-site who can oversee the property or deal with any problems that come up, it will be hard for you to keep them rented out.
Can I use my holiday home as a holiday let?
The short answer is yes. You can let your holiday home out to other people.
However, it’s important to be aware of potential tax implications and other legal issues before making this decision.
If you’re thinking of letting out your holiday home, you should:
- Check whether planning permission is required for holiday lets. Some local authorities have restrictions on the size of properties that can be used as holiday lets or require special permissions from the council before using a property for this purpose
- Check whether any other local laws apply to holiday lets in your area, such as noise limits or fire safety rules
- If there are any additional management expenses that come with letting out a property, such as paying insurance premiums or professional cleaning costs
- Check what type of tenant your insurer will allow you to accept and if they’ll cover any loss or damage caused by tenants during their stay at your property
What are the additional costs of buying a second property?
At first, buying a second home seems like a good idea. You get to buy a place that you can live in, and at the same time, you can make good money by renting it out.
However, if you don’t do your homework properly and consider all of the costs involved in buying a second property, it could end up costing you more than you expected.
Here below are some of the additional costs that you might not have considered previously:
Taxes on second homes
The taxes for second homes will be different than those for your main residence. Make sure to ask what they are and how much they will cost so that you can plan accordingly.
Utility bills on second homes
It might be tempting to use the utilities at your second home as much as possible because they will come out of your pocket instead of your tenant’s rent check.
However, doing this could lead to higher utility bills in the long run because they won’t be used efficiently by multiple people living there.
How much is stamp duty when buying second homes?
Stamp duty is a tax charged on property purchases and there are different rates depending on the price of the property. The higher the price, the more you pay.
The current system of Stamp Duty Land Tax (SDLT) was introduced in December 2003. Since then land and buildings transaction tax has been modified several times and now works in a similar way to income tax.
As with income tax, a person’s liability for SDLT depends on their total taxable income and not just the amount they earn from their main job. This means that when buying second homes or holiday homes, people will be liable for paying SDLT even if they have never worked before or only have a small amount of savings.
How much is capital gain tax when buying a second home?
If you buy a second home, you’ll pay capital gains tax on any profit you make when you sell.
The amount of capital gains tax depends on how you buy a second home, how long you own the property, and how much it costs. You will also need to declare any income that comes from renting it out.
The taxman has rules which determine whether you can claim capital gains on your second home. If you are an employee or self-employed, this is generally not possible as they do not allow employees to claim full relief against income tax. Only basic rate taxpayers can claim full relief against their income tax liability.
However, if you receive rental income from letting out your second home, it may be possible to offset some of that against your income for taxation purposes (and so reduce the number of capital gains taxes payable).
How much is council tax when buying second homes?
The amount of council tax that you have to pay depends on where you live and the value of your property. Council tax bands are based on the current market value of a property, which is the price you would expect to get if you sold it on the open market.
If you live in a new build property, a flat, and own your home, things will be valued differently by your mortgage lender when they will assess how much you can borrow.
Pros and Cons of buying a second home in the UK
Buying a second home in the UK can be a great investment. However, it’s also important to think about how to buy a second home, how you’re going to use your new property, and what you want from it.
The first thing to consider is whether you’re buying for yourself or as an investment. If it’s the latter, then you need to think about what you will do with the property once it is yours. That might mean renting it out or converting it into a holiday let.
Pros of buying a second home
- Buying into the market: The property market is still strong and prices have increased steadily over the last few years. This means that if you buy now, in let’s say, five years’ time, your property will increase in value
- Renting out your property: If your main home is in an area with high demand for rented properties, then renting out your second property could be an ideal option for supplementing your income. Read more on rental yield in our dedicated article
Cons of buying a second home
- High interest rates: Interest rates are high at the moment, making it harder to afford a mortgage on your new home
- The cost of buying a second home is higher than the cost of buying your first home
- The mortgage on a second home may not be tax deductible
You should know how to buy a second home that will actually benefit you and how much you can actually afford to invest. You should also have a good idea of what kind of neighbourhood you’d like to live in, this will help narrow down your search when you begin looking at properties. Finally, it’s important that you find a mortgage lender who understands your situation and can help you get the loan that works best for your needs.