The UK has some of the best locations in the world, from our vibrant cities and breathtaking coastlines to our beautiful countryside. This love of our towns, cities, counties and regions has seen significant numbers of people choosing to spend more time in their favourite location, by purchasing a second home.
With many buyers seeking the benefit of a rural retreat alongside their main home, demand for second properties has grown since the start of the pandemic in 2020. Many of these second purchases have been motivated by lifestyle factors in desirable areas where they can enjoy quality time.
SIGNIFICANT DEMAND FOR PROPERTIES
This has lead to a significant demand for properties in places like the Cotswolds, Somerset and Cornwall, as more people shift their mind-set from seeing their homes simply as a place to sleep, to places where they are going to live, work and play.
FINANCE
Before you commit to purchasing a second home, it is important to consider how to finance it. There are a number of mortgage options available depending on your financial situation. For many, releasing equity to buy another property can be an option, while investors may need a specialist mortgage.
A second home mortgage will enable you to purchase a holiday home and also permits a small amount of letting. This could be helpful to offset some of the running costs.
Where the property is to function more as a holiday let, so that it will be let out as much as possible, a specific holiday let mortgage will be required. A variation on this would need a serviced accommodation mortgage if the lettings are Airbnb, holidaymakers, business travellers and contractors.
INCOME AND COVERING COSTS
You should factor in additional expenses such as Stamp Duty Land Tax (SDLT) and potential capital gains tax (when you sell it) on a second property in the future when doing your calculations, as these can add significantly to the overall cost. There will also be ongoing expenses to consider such as council tax, insurance and utilities, which can all add to the cost of buying a second home.
“Owners who choose to rent out their second home do so for a variety of reasons, but a source of income and covering costs are the primary drivers.
Security purposes and avoiding leaving the property empty are other motivators.”
INFORM YOUR INSURER
If you are considering how to use your second home, you need to check whether your insurance is valid to use your home as a holiday let or if you need to obtain permission and inform your insurer. If the property is leasehold, will the landlord permit the intended use and do you need planning permission from a local council to let your property for a set period of time, which may constitute a material change of use. You must also ensure that any agreement to let is for a specified time so that the holidaymakers must vacate at the end of the term.
STYLES OF PROPERTY
When you apply for a mortgage the lender is interested in two things:
- You
- The property
The construction of the property and its current value and condition will influence whether any mortgage is approved or declined. Most properties are build in a standard way, with solid brick walls and a tiled roof.
But others are not so straightforward, and for these you will need a specialist property mortgage. Your mortgage broker will be able to sort this out for you, with finance available for: converted barns, old churches, old pubs, thatched roofs, castles and more.
EXPLORING YOUR OPTIONS
If you are buying a second home, you have to pay extra SDLT. In England and Northern Ireland you’ll pay a 3% surcharge on each band. In Scotland, Land and Buildings Transaction Tax (LBTT) on properties is charged at an additional rate of 4%, and in Wales rates on properties are charged at an additional rate of 4%. All things considered, the summer holidays can be a great time to use and enjoy a second home.
If you’re interested in exploring your options, a conversation with your mortgage broker is recommended. You will need to inform any new lender of how you plan to use your second home and ensure they are comfortable before proceeding.
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