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Buying a second home

Buying a second home

A second home can be everything from an investment to a handy holiday getaway. Either way, you’ll probably find that it’s a bit more expensive – and sometimes trickier – to make that purchase.

If you’re buying a second home to rent it out, check out our Buy to Let guide here to see if a Buy to Let mortgage is a better choice for you. If your second home is all for you, read on!

Financing your second home

If you’re lucky enough to be a cash buyer you can skip this section. But if you want to finance your second home with a mortgage, you’ll find that the process is very similar to the one you went through for your ‘primary home’ (the one you live in).

Some good news first – if you haven’t finished paying the mortgage on your primary home, you can still get another mortgage on your second home. You just need to show the lender that you can afford it.

Whether or not you already have a mortgage, your chosen lender will want to see the following before they finance your second home:

  • A healthy income that can cover your new mortgage, you existing one, and any other outgoings you have.
  • A good deposit, usually 25% for your second home.
  • An estimate of rental income if you plan to rent the property out, e.g. as a holiday home.
  • A good credit score.

In essence you need everything you needed for your first mortgage, but with a bigger deposit. Check out our guide to saving for a deposit, and the other fees you’ll need to pay when you’re getting a mortgage, here.

It might also help to make yourself familiar with the home buying process again. We’re got that covered here.

Stamp duty

When you buy a second (or third, or fourth) home, it will be known as an ‘additional residence’. 

When you buy an additional residence you’ll have to pay more stamp duty than you would on your primary residence. This can add up to a lot, so make sure you account for it in your budget.

Most notably, you’ll pay stamp duty on every single penny of your purchase – there’s no tax-free threshold like there is when you buy a primary residence. The rates are also higher than they are on main homes (an extra 3% in each band).

Check out the UK government’s official stamp duty rates to find out how much you’ll pay.

Capital gains tax

You won’t need to worry about capital gains tax until you decide to sell your second home, but it’s something to be aware of before you splash the cash.

Capital gains tax is what you pay when something you’ve bought (in this case your second home) has increased in value since you bought it. You don’t usually pay it on your main home, but you will on your second one.

The amount you pay is based on things like your income and the increase in value of the property. The good news is that you only pay this tax on the gain, not the whole sale price of the property. You also won’t pay it up to a threshold of £12,000.

Beyond that you’ll pay 18% capital gains tax on your profit, or 28% if you’re a higher rate taxpayer.

Sounds like a lot of work…

Yep. That’s why it’s a good idea to talk to a financial adviser before you sell (or even buy) your second home, as they’ll be able to tell you how much everything’s likely to cost. It also depends on what you want it for – are you renovating a property to sell on, or do you want it for holidays? Are you going to rent it out when you’re not there? All of these things matter.

And remember, you’ll need extra budget for making necessary repairs, doing the property up if it’s old, moving things into the house, and more – just as you would with your main home.

If you’re looking for a mortgage on your second home, chat to your mortgage broker about the kind of deal you should be looking for. They’ll help you pick one that suits your needs, as well as helping you find the best insurance for your new property.

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