Buying a second home

There are many reasons for people wanting to purchase a second home. They might want to buy an additional property as a holiday home in their favourite place on the coast, or a bolt hole in the city. The second home could be bought with the intention of providing a home for a family member, or as a holiday let. Or perhaps it is a long term investment for the future.

We have put together the following guide, which explains what a second home involves, and how different is it to a normal house purchase.

Can I buy a second home using equity?

Yes, buying a second property is possible using the equity you have in your main home. You will need a 25% deposit for a mortgage on a second home, so a mortgage lender will judge if you have enough equity to afford the second home mortgage repayments. You can calculate the equity you have by subtracting the capital you have left to pay on the mortgage of your main or primary residence from the current market value of the property.

Does the deposit increase on a second home?

Yes. Second home mortgages require applicants to put down a deposit of at least 25%. A normal mortgage would usually only need a deposit of 5-10%. You could use the equity on your main home to take out a remortgage and use those funds for a deposit on buying your second property.

What kind of mortgage do I need?

You will need to apply for a second home mortgage. Second home mortgages carry more stringent financial checks and criteria, because lenders need to be confident that you can keep up the mortgage payments on two properties. You may also need a specialist mortgage, such as one of the following:

• Buy to Let mortgage – if you are intending to rent the property out
• Holiday Let mortgage – if you are planning to let the property on a short-term basis to holiday-makers

Is it more difficult to get a mortgage on a second home?

It is harder to be accepted for a mortgage on a second home, simply because a lender will be conscious that applicants will already have significant financial commitments from their existing mortgage for their primary residence. A larger deposit of 25% is not the only requirement mortgage lenders will have. They will also need proof that you have an income substantial enough to enable you to afford mortgage repayments on two properties. They will also take into account your age and how long you can maintain your existing level of income.

How does buying a second home impact tax?

Buying a second property will have tax implications. You will pay a higher level of stamp duty than on your main residence, and won’t benefit from the 0% rate on properties up to £250,000. See the table below for the current rates (as of August 2023) of stamp duty on additional properties:

England and Northern Ireland Stamp Duty Rates for Second Properties:

Up to £250,000                                  3%

£250,001 - £925,000                     8%

£925,001 - £1.5m                          13%

Above £1.5m                                    15%

The amount of capital gains tax will also be affected. Basic rate taxpayers will pay 18% on the increase in value if they sell a property that is not their main residence. The only way to avoid paying capital gains tax on a second home is if the increase in value of the property is less than the individual capital gains allowance (currently £12,000).

You will also be liable for council tax on the second home, unless you qualify for an exemption or discount. You can find out more about council tax exemptions from your local council.

What are the additional costs involved?

Buying a second property will mean that you will have to pay for all the standard costs associated with purchasing a home, such as mortgage arrangement fees, mortgage valuation fees, conveyancing costs and buildings insurance.

Let us help with your property search

If you’re thinking of buying a second home, we can help. Get in touch with your local branch today!