According to the latest estimates, one in ten Brits currently own a second home. And as the UK property market continues with its unseasonal boom, if you can afford to do so, now might be a good time to expand your property portfolio.
There are many things to consider when buying a second property, from choosing the right mortgage to understanding the extra costs you’ll need to pay. If you’re thinking about joining the 10% who have more than one property, the experts at Good Move have put together their top tips to help you on your way.
Choose the right mortgage for you
When buying a second home, you need to ensure you’ve got the right mortgage. Applying to borrow for another property can be a little more complicated than with just one property, as you’ll need to provide concrete evidence that you can afford it. There are a few different options available to you:
Buy to let mortgage: If you’re purchasing a property as an investment with intentions to rent it. This usually requires a deposit of 25-40% of the property price.
Holiday-let mortgage: For using the home and renting it out for guests for short periods, you can apply for a holiday-let mortgage. The property needs to be available to rent for at least 210 days in the year, and this mortgage often requires a 25% deposit.
Buying to use as a holiday home: For personal use, like a holiday or second home, you’ll simply need a regular mortgage. The bank will usually ask for a larger deposit than a regular property though, at around 15%.
Consider Capital Gains Tax
Capital gains tax is a charge you need to pay on your second home if it’s increased in value since you bought it. Within a tax year, you are entitled to a £12,300 (2020/21 rate) capital gains tax allowance. Once your profits exceed your allowance, the rate of capital gains tax you owe depends on your tax bracket:
A basic rate taxpayer earns up to £50,000 and will pay 18% tax on second property profits after capital gains tax allowances.
A higher rate taxpayer earns over £50,000 and will pay 28% tax on second property profits after capital gains tax allowances.
Other costs to consider
Stamp duty as usual, plus a 3% surcharge (not applicable during now and the end of the Stamp Duty Holiday in March).
Council tax on your second property – you can sometimes get a discount if you use your second home as a holiday home
Continual costs including upkeep, repairs, and renovations
Income tax if you’re renting out the property
Nima Ghasri, Director at Good Move, concluded, “This year has seen a huge property boom, with the Stamp Duty Holiday and house prices and mortgage applications at an all-time high. Therefore, if anyone has been thinking about buying a second property and is in the financial position to do so, now could be the best time to do it.
“When you are buying a second property, there are many things you need to consider, from choosing the right mortgage to ensuring you’re considering the additional costs necessary when adding to your property portfolio. For anyone considering buying a second property at this time, we hope this advice will help people understand all they need to do before making the decision.”
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