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Buying a Second Home? Here’s What You Need to Know

Buying a home can be a long and arduous process, but it is worth it to end up in possession of a home that is truly yours. However, as difficult as it can be, many people find that once they have been through the process once and seen how it works, they feel a lot more confident about the idea of approaching it a second time.

Buying a second home is definitely easier than buying the first because you already know most of what’s involved. However, there are some things that you need to know before you commit to buying a second home.

Buying a Second Home – The Costs Of Buying

When you are buying a second home, there are some additional costs that you need to factor in your financial decision-making. For example, a second home is subject to capital gains tax when you eventually decide to sell, which is something that your main residence is exempt from.

Capital gains tax applies to any possessions you have that are worth more than £6,000. If you plan on selling your second home in the future, you should be aware that you will be taxed on the increase in the value of the property, not the amount that you sell it for.

If you move into a second home and decide to make it your main residence, you will need to let HMRC know. Otherwise, you will still be liable to capital gains tax when you sell the property.

The other major cost to be aware of is stamp duty. Stamp duty works a little differently when you are buying a second home, and you can expect to pay more than you did on your last property.

First-time buyers are entitled to relief from stamp duty on their first home, but any subsequent homes are charged at the full rate. If you are buying a second home in addition to your main residence, you will have to pay a further 3% on top of the standard stamp tax rate.

Getting A Mortgage On A Second Home

A common question that many people have when they are considering purchasing a second home is whether they can pursue a mortgage for a second home while still paying off the mortgage on their primary residence. The answer is, yes, you can.

Second mortgages, as they are known, enable you to borrow the money you need to purchase a second home while you are still on the process of paying off a previous mortgage. Of course, this will be dependent upon your financial situation, and the fact that you were previously granted a mortgage doesn’t guarantee that you will be eligible for a second mortgage. Lenders will also take into consideration that you have an existing mortgage, which can represent a serious debt.

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If you want to maximise your chances of approval for a second mortgage, these are going to be the most important factors for lenders to consider.

  1. How big a deposit are you able to put down? Whether you are applying for a first or a second mortgage, having a large deposit to put down is always going to smooth the path ahead for you. The more funds you have available for a deposit, the better. You will usually need to put down more for a second mortgage than you would for a first mortgage, and you should be prepared for a deposit as high as 25%.
  2. What is your credit score? Before you apply for a second mortgage, it is a good idea to get a copy of your credit report and to pay off any outstanding debts that you have. If you cannot clear your debts entirely, then it is still worth reducing them. The better your credit score is, the more amenable lenders are going to be to granting you a second mortgage.
  3. What’s your current income? If you have a steady stream of income, you can overcome many of the usual barriers to lending. If you have a high income, we always recommend that you prioritise paying off your existing debts before taking on new debt. However, even if you have existing debts, if you can show that you have a regular income and are able to put down a large deposit, lenders will feel better about lending to you.
  4. What do you plan to do with the property? Mortgage providers will consider whether you are going to be living in the property or whether you will be renting it out. If you are going to rent it out, your projected income from renting the property will factor into a lender’s decision; you’ll also need a specialist buy-to-let mortgage rather than a traditional home loan.

Second Home and The Ongoing Costs

Buying a second property means that you are taking on all the obligations that come along with it. You will need to shoulder the ongoing costs associated with your primary residence and your second home. Before you pull the trigger on the purchase of a second home, make sure that you have carefully added up the ongoing costs and considered how you will pay for these in addition to what you are currently paying for your main residence.

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For example, if you are buying a second home as a buy-to-let property, you are going to have to ensure that the property is up to standard. That means going over the place and making sure that any maintenance work that needs doing is done, and the property is in an appropriate state for a tenant. Once you have got the property up to standard, you will then have to keep it at that same standard. You can’t always predict your maintenance costs, but you should be able to work out a rough monthly figure. Leave some headroom for essential repairs in case you need to make them.

If you are purchasing a second home to use as a holiday home, then you are still going to be liable for council tax. Some councils in the UK offer a discount for second home buyers, so it is worth investigating this beforehand. However, you should be prepared to pay full price, as these policies can always change.

In addition to council tax, you have the other ongoing costs, such as utility bills. Even if you aren’t in the property, you will still need to pay to keep all the utilities turned on. If you are only going to be using your second home occasionally, you might want to consider whether you can live with a cheaper broadband package there, for example.

As long as you do all your homework and make sure that you know exactly what you are getting into before you make a financial commitment, buying a second home doesn’t need to be an intimidating process. However, if you want to make sure that things proceed as smoothly as possible, then it is worth working with a professional estate agent like GLP. Whether you are looking for a second home to use as a holiday home, or so you can convert your current home into a buy-to-let property, we can help you to find the ideal property for your needs. Contact us today to see how we can help you.

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