After buying your first property, you’d be forgiven for not wanting to deal with the hassle again, but if you are fortunate enough to be able to afford a second home, it can be a process worth bearing. The good news is, it’s usually simpler to buy a second property when compared to your first. In this guide, we’ll look at why some homeowners choose to buy a second property and the different ways of financing the purchase.
Why people might choose to buy a second home
Of course, you can only really live in one house at once, but many people who can afford to still choose to buy a second home. There are a variety of reasons why homeowners might decide to actively look for houses and apartments for sale with the aim of purchasing a second property.
Below are some of the most common reasons:
Property is often considered to be one of the safest investments you can make and getting started with a buy-to-let investment can be a great way of generating an additional income stream. In fact, the amount of people investing in second properties has been one of the driving forces behind the growth in the market.
For those who like to regularly travel to a specific holiday destination, a second home can be ideal. Whether it’s a property in the UK or another part of the world, keen holiday goers often choose to buy a second property in their preferred destination.
Holiday homes can also be considered an investment, as many homeowners choose to rent them out whilst they are not occupying the property themselves.
Buying a property for someone else
Another reason for the purchase of a second property can be to help someone else get onto the property ladder. There are several reasons why someone might need a helping hand when trying to get a foot on the property ladder, and homeowners may choose to purchase a second property themselves and allow the person they are helping to take unofficial ownership of the property.
There are some drawbacks however, as purchasing a second property will significantly increase the level of stamp duty you are liable to pay.
Ways to finance the purchase of second home
Not everybody realises that homeowners don’t need to pay off an existing mortgage in order to get another. It is possible to have two or more mortgages running simultaneously, however, you’ll need to ensure that you qualify by having certain aspects in place:
- Have a sizeable deposit available, usually around a quarter of the new property’s value.
- Be able to prove that you can afford the new additional mortgage.
- Information regarding potential income which can be made by the property in question.
- Have an excellent credit rating
Another option is to release some of the equity from your current property to cover some of the cost of the new house. If you have already paid off a significant amount of your current mortgage, it can be an option to remortgage your original property to secure the funding for the new purchase.
This is the preferred method for most buyers and sellers, and if you’re fortunate enough to have the money up front, buying a second property can be relatively straightforward. If you can find a property that suits your needs, you can get a survey conducted, run any background checks and be ready to move through the process relatively quickly.
Important things to consider
It’s important to remember that the buying phase of taking ownership of a second property isn’t the end of the financial responsibilities. There are a few other considerations including the following:
- Stamp duty – As previously mentioned, the purchase of a second property will require you to pay a high amount of stamp duty. Currently, stamp duty on a second home is 3% of the property price.
- Capital gains – When you decide to sell the new property, you’ll need to pay capital gains tax. Capital gains tax applies to any profit over the £12,000 allowance. People on the higher tax bracket could be subject to as much as 28% capital gains tax when selling.
- Council tax – Another cost to consider is council tax. Chances are, you’ll need to pay council tax on your second property. However, there are certain circumstances in which you may qualify for a reduction.
If you are considering purchasing a second home, it’s important you are aware of the costs and risks involved. A second property is often considered a safe investment, but investments are only safe if you can afford them. It’s a good idea to do as much research as possible prior to the purchase and ensure you take the right decision.