You can buy a second property as an investment or as somewhere to escape to. One in ten Brits currently own a second home in the UK, and it might be time for you to join the club. After the pandemic, the government released several schemes to keep the property market afloat. As a result, the property market is booming right now, and homes are flying off the market.
The property market is currently quite sparse after the recent boom in sales. You may need to look around and spend some time travelling to different areas that you didn’t consider before. Keep an open mind and make the best decision for you.
Here are a few things to consider before buying a second property.
Stamp duty
There is a stamp duty surcharge of 3% when buying another home, on top of the initial stamp duty tax. The government offered temporary reduced rates on stamp duty from March to September 2021. The temporary tax relief has now ended.
Deposit
If you need to take out a mortgage on your property, you will need to pay a deposit of at least 15%. This can climb to 25% if you plan to rent the property out to tenants. Some lenders will accept 10% of the purchase price.
If you already have a mortgage on another property, you will have to meet a strict list of requirements to take out a second mortgage. Lenders tend to be a little wary of those taking out a second mortgage.
Capital gain tax
You might decide to sell your second home if its value has increased over time. In this case, you will need to pay capital gains tax on your second home if it’s increased in value. This only applies if your profits exceed £12,300 in a tax year. The rate of capital gains tax will then depend on your tax bracket. A higher rate taxpayer, earning over £50,000, will have to pay 28% on the second property profits after the capital gains tax allowance.
So, what are the best options to buy a second property?
You could opt for a secured homeowner loan and offer up a collateral asset to secure the loan. If you fail to make the loan repayments, the lender will seize the asset as collateral.
Research is key. You need to make sure you’ve got the right mortgage, and your application clearly states this is your second property. You will need to provide evidence that you can afford a second property and the mortgage payments. If you want to rent out the second property, you could opt for a buy to let mortgage. Bear in mind that this often requires a deposit of 25 to 40% of the property price.
Do your research and make sure a second home is the right financial investment for you.
