Why do you want a second home?
It's important to think about why you want to buy a second home. Are you looking for a holiday bolt-hole, seeking an investment that brings in rental income, or planning a future retirement place? Your reasons will shape the kind of property you choose, where it's located, and how you go about financing it.
Getting a mortgage for your second home
Once you've determined your goals for your second property, the next step is assessing what you can afford. You might be in a position to purchase the property outright with cash, or you may need to secure a mortgage to finance your second home. In order to get a second home mortgage, you would need:
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Large deposit: When buying a second property, you'll typically need to put down a significant deposit—at least 25% of the property's value. This is because lenders view second homes as higher risk compared to primary residences.
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Good income: Lenders will stress-test your finances to ensure you can manage repayments on both your main home and the second mortgage. This means you'll need to prove a stable and sufficient income.
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Details of any rental income: If you plan to rent out your second property, you'll need to provide potential mortgage lenders with details of the expected rental income. This income can sometimes be considered when assessing your ability to afford the mortgage.
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Strong credit score: A good credit score is crucial. Lenders will look at your credit history to ensure you're a reliable borrower. Maintaining a good credit score will improve your chances of securing a favourable mortgage rate.
You should always get expert tax advice before proceeding with any purchase. For more information and tailored support on mortgages and finance, get in touch with our mortgage experts. When buying a second home, it's essential to calculate your financial commitments, including the mortgage for your new property. Use our mortgage calculator to estimate your monthly payments and ensure your second home fits within your budget.
Buy-to-let or short let mortgages
Consider a 'buy-to-let' mortgage* if you plan to rent out the property long-term, or a 'short let' mortgage if you're looking at short-term rentals. These specialised mortgage products can offer more suitable terms for rental properties. If you're considering a second home as a buy-to-let investment, it's important to understand the additional costs, including stamp duty. Use our buy-to-let stamp duty calculator to estimate your tax obligations for investment properties.
*Please note that some forms of Buy-To-Let mortgages are not regulated by the FCA.
Costs & tax implications of buying a second home
When buying a second home, be aware of the additional costs and tax implications. These can significantly impact your finances, so it's essential to budget carefully.
Stamp Duty on second homes
Stamp Duty Land Tax (SDLT) on second homes in the UK is higher than for primary residences. The surcharge is currently an additional 3% on top of the standard rates, making it a significant expense. The table below outlines the different SDLT thresholds for second homes*:
| Property Price | Standard SDLT Rate | Additional SDLT Rate for Second Homes | Total SDLT Rate for Second Homes |
|---|---|---|---|
| Up to £250,000 | 0% | 3% | 3% |
| £250,001 to £925,000 | 5% | 3% | 8% |
| £925,001 to £1,500,000 | 10% | 3% | 13% |
| Over £1,500,000 | 12% | 3% | 15% |
For example, if you purchase a second home for £300,000, the SDLT calculation would be:
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3% on the first £250,000 = £7,500
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8% on the remaining £50,000 = £4,000
Total SDLT = £7,500 + £4,000 = £11,500
For more information on how stamp duty applies to purchasing an additional property, consider using our stamp duty calculator before making any purchase decisions and make sure to check out our detailed guide on stamp duty on a second home.
*Correct figures as of August 2024
Capital Gains Tax on second homes
If you sell your second home for a profit, you may be liable for Capital Gains Tax (CGT). The amount you owe depends on your tax bracket and the profit made from the sale. Here's a detailed breakdown:
CGT rates and allowances:
As of the 2023/2024 tax year, the CGT rates for residential property are:
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Basic rate taxpayers: 18%
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Higher rate taxpayers: 28%
Everyone has an annual CGT allowance, which is £6,000 for the 2023/2024 tax year. This means you only pay CGT on gains above this threshold.
Tax on rental income
If you rent the property out, depending on how you purchase the property you could be subject to additional tax on any income. Please seek professional Tax advice.
Council tax on second homes
Owning a second home means you'll be responsible for paying council tax on both properties. Some councils offer discounts for second homes, but this varies by location.
Buying a second home using equity
One way to finance a second home is by using the equity in your current property. This involves remortgaging your first home to release some of its value.
Calculating your equity
To calculate your equity, subtract the outstanding mortgage balance from your home's current market value. For example, if your home is worth £400,000 and you owe £200,000 on your mortgage, you have £200,000 in equity.
Read through our guide on how to buy another property using equity for more information.
How to rent out your second home
Renting out your second home can help offset the costs and even generate profit. There are two main options: long-term rental (buy-to-let) or short-term let.
Long-term rental
If you choose to rent out your property long-term, you'll need a buy-to-let mortgage. These mortgages often have different terms and interest rates compared to standard residential mortgages.
Short-term let
Turning your property into a short let can be lucrative, especially in popular tourist areas. However, managing a short let can be time-consuming. Get in touch with our team of short let experts for advice and support with managing your short-term rental.
Buying a holiday home
Many people buy holiday homes to enjoy regular getaways without the hassle of booking accommodation. Owning a holiday home provides the convenience of a personal retreat and the potential for rental income.
If you plan to rent out your holiday home frequently, consider a short let mortgage, which caters specifically to short-term rental properties. Lenders typically require a higher deposit for short let mortgages, often around 25-30% of the property's value, and the interest rates might be higher than those for standard residential mortgages. Get in touch with our mortgage & finance partners to get specialised support.
What is ‘let-to-buy’?
'Let-to-buy' is a mortgage strategy where you let out your current home to buy a new one. This can be a good option if you're moving but want to retain your original property as an investment.
Potential risks
While let-to-buy can be advantageous, it's not without risks. Market fluctuations can affect rental income and property values. Consulting with specialists and mortgage advisors is crucial to navigate this successfully.
How can Hamptons help you with buying a second home
Hamptons offers comprehensive support for individuals looking to buy a second home. From finding suitable properties for sale to managing your property and rental needs, we provide end-to-end services.
Our sister company Capital Private Finance can help you with expert mortgage advice, ensuring a smooth and successful experience. For more information on how we can assist you, please contact us or find your nearest branch.
