It is estimated that approximately one in every 10 Brits currently owns at least two properties. Some of whom have invested in second homes within the United Kingdom, others opting for homes and apartments overseas.
In all instances, second homes have the potential to generate generous and consistent revenue streams for their respective owners. Before investing in a second home, there are several key questions that must be brought into consideration.
Why do you want a second property?
Different people invest in second properties for different reasons. For some, it is all about having a second home in a desirable area of the country to spend weekends, bank holidays and extended stays during the summer. For others, it is about nothing more than generating the strongest possible rental income on an ongoing basis.
Your motivations for investing in a second property should play a key role in every decision you make. It is therefore important to carefully consider your intentions and objectives before making the decision to purchase a second home.
How much does it cost to buy a second property?
Outside the cost of the property itself and all associated borrowing costs, all additional properties you own will be considered ‘secondary residences’ by the government. This means you could be liable for extra stamp duty, irrespective of the value of the property.
Capital gains tax is also chargeable on secondary residences when they are sold on, if the market value of the property has increased since the time of its purchase. If you have any questions or concerns regarding the additional costs of buying a second property, consult with an independent broker before going ahead.
What are the options for letting out a second property?
Some people purchase second properties with the exclusive intention of letting them out in the future. You could have the option of letting out your property on a long-term or short-term basis – whichever suits your requirements and objectives best.
It is important to note that your capacity to provide proof of sufficient rental income (projected) will influence your eligibility or otherwise for certain types of mortgages. If your intention is to use your rental income to cover a second mortgage, your lender will normally expect proof of a minimum projected rental income of 125% of the mortgage payments.
What is ‘Let to Buy’?
Let to Buy refers to the process of purchasing a second home with the intention of letting out your existing property to cover the outstanding mortgage payments. Along with being a great way of generating a secondary income stream, Let to Buy also represents an affordable and alternative option when selling a property becomes difficult or unprofitable.
Another benefitis the potential option of using the equity tied up in your existing home to cover the deposit on your second home.
Is it worth buying a holiday home?
There are many benefits that accompany owning a holiday home. Along with gaining ownership of a second home in a part of the country (or elsewhere) you enjoy spending time; you have the freedom to let out your property when you’re not using it.
It is important to note that renting out a holiday home can bring additional tax implications into the equation. In addition, renting out a holiday home on a periodic basis only may not prove sufficient to cover the costs of the mortgage you take out on the property. All of which is worth discussing at length with an independent broker if you are interested in purchasing a holiday home in the UK or overseas.
Independent Expert Advice
Irrespective of your motivations for purchasing a second property or your long-term financial goals, you will find the help and support of an independent broker invaluable. Along with providing you with a detailed overview of the available options, a reputable adviser can compare the market on your behalf to find you an unbeatable deal.