Summer is here, and the thought of slipping off to the country or a seaside retreat is tempting.
Heading off to your own holiday home is more tempting still. According to official data, there are currently 482,000 second homes owned in England alone.
But if you have the necessary spare cash, should you consider a second home?
Ask yourself these questions…
- How easy is the location to reach in terms of time, distance and methods of transport. Can you get there for weekends, or will it only be worth going for weeks at a time?
- Are you happy to holiday in the same place every time you go away? It’s not very cost effective to buy a second home and still spend money travelling elsewhere.
- Do you want more responsibilities? If it is your own property, any trip will inevitably mean having jobs to do. At least part of your time will be spent on maintenance.
- Is it just for you, or would you like to rent it out when you’re not there? Running a successful holiday let can make you a decent income, but it has to be done correctly. Your second home could become a business, with all that implies in overheads and tax.
The costs of buying a second home
Buying a second home can potentially be a rewarding investment, even if you are not planning on renting it out. An attractive home in a popular location could be an appreciating asset, but the downside is a significant cost to buy and keep your new property.
Prices vary greatly depending on location, property type, and market conditions. Desirable locations such as coastal areas, and popular countryside spots often come with a premium price tag. Thorough market research and possibly consulting a property advisor can help identify areas with the best investment potential.
Remember, buying an additional property means higher Stamp Duty Land Tax (SDLT) rates. There is a 3% surcharge on top of the standard rates for second homes. So, if you buy a second home worth £400,000, you’ll pay the standard SDLT plus the 3% surcharge on the entire purchase price, significantly increasing the upfront cost by £19,500.
There may also be punitive council tax bills to consider. Second home owners in England could face paying twice the amount of second home council tax from April 2025. Under the Levelling Up and Regeneration Act 2023, councils were given the discretion to charge additional council tax of up to 100% on furnished homes not used as a sole or main residence.
Insurance is another ongoing cost. Premiums can be higher due to the increased risk of the property being unoccupied for extended periods.
Paying for a second home
So, what’s the best way to deal with the costs of a second home?
Securing a mortgage for a second home can be more challenging than for a primary residence. You could take an interest-only mortgage to keep monthly payments lower, but this needs a clear strategy for repaying the principal. Retiring to your second home and paying off the mortgage from the sale of your current property may be one answer.
It might also be possible to use your main home to pay for your second home without moving out. If you own your main home outright or have significant equity, releasing some of this equity can provide funds for a second home purchase. Equity release schemes like lifetime mortgages, can let you borrow against the value of your primary residence. However, these come with their own risks and costs, and expert advice is essential.
You’ll also need expert advice about tax.
If you plan to rent out your second home, it can mean additional income, which will also mean income tax. The income must be declared on your self-assessment tax return, and you’ll need to account for allowable expenses like letting agent fees, maintenance, and potentially mortgage interest. There will be a Capital Gains Tax (CGT) impact when you come to sell.
Getting expert advice
Getting expert advice when you make any major purchase is a sensible move, and a call to Continuum could be vital if you are thinking about a second home. We can help you see the full financial picture, from the investment potential to the tax certainties and help you get the mortgage you need.
https://www.telegraph.co.uk/money/property/second-homes/buying-building-holiday-home-what-need-know
https://www.apiglobal.co.uk/what-to-know-when-buying-a-second-home/
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable mortgage or investment strategy, you should seek independent financial advice before embarking on any course of action.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
The value of property investments and income from them can go down as well as up and investors may not get back the amount originally invested.
Levels, bases and reliefs from taxation are subject to individual circumstances and may be subject to change.
The Financial Conduct Authority does not regulate taxation advice and some aspects of Buy to Let mortgages.
A lifetime mortgage is a loan secured against your home. To understand the features and risks, ask for a personalised illustration. Equity Release will reduce the value of your estate and may affect your entitlement to means tested benefits.
